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What is a Schedule SE?

What is a Schedule SE?

Many small business owners might have no idea what a payroll tax is. This article will explore what you need to know about IRS schedule SE whenever you start a business. 

Payroll tax is the combination of Medicare tax and Social security tax applied to workers' wages and salaries. The employer removes half of these taxes from their worker's paycheck while the employer pays the other half.

This, however, differs for self-employed people as they will have to pay both the "employer" and "employee" part of their Medicare and Social security taxes. This is called Self employment tax.

For your net earning up to 132,900 dollars, 15,3% of your self-employment income will be a tax where 12.4%  is for social security and Medicare takes 2.9%. The net earnings for this amount will have 2.9% of taxes. As a result, the maximum contribution for social security for 2019 is $16,479.60, which was obtained by multiplying 12.4% by $132,900. Medicare part of the Self employment tax has no income limit.


Use of Schedule SE

The idea behind Schedule SE is to figure out the self-employment tax. The silver lining is that one half of the self-employment tax reduces your (AGI) adjusted gross income.


People Required to File a Schedule SE

People that worked as an independent contractor, whether part-time or full time, need to take care of SE Tax. If you are self-employed and your net earnings are $400, your 1040 needs to be accompanied by a Schedule SE. 

The following are categories of Self-employed individuals for the purpose of SE taxes:

  • contractors getting compensation for non-employment

  • LLC owners, single members

  • People that pay business taxes using a Schedule C

  • Partners involved in the active provision of services to the partnership. People in this category include multiple-member LLCs that file a partnership return. 

  • Religious leaders might also have to file Schedule SE, especially if your clergy income is more than $108.28


How Does the IRS Use Schedule SE

The IRS will send your payroll taxes and other info about your self-employment taxes to the social security administration. With this, the SSA can deduce your social security benefits. It is essential that you pay SE taxes on your self-employment earnings net amount irrespective of your age.

 

Basics of Schedule SE

There are two main methods of schedule SE to calculate taxes: the "short" and "long."

Some of the essentials to know about the short method are highlighted below:

Line 2: This is where you will input your net profit. The earnings from your self-employment work or Schedule X business

Line 4: The value will be multiplied by 92.35

Line 5 is where you estimate the value of the self-employment tax.

  • In line 4, if the amount is less or the same as $132,900, you will have to multiply this value by 15.3%

  • For line 4 amount greater than $132,900, you will need to multiply the value by 2.9%. The result will be added to $16,479.60 

Taxpayers with distinct situations will have to observe the "long" calculation route. This applies to taxpayers with both wages and income from self-employment.

Your Schedule E calculation will reflect on Form 1040, as explained below.

1. You will report SE tax on Schedule 2, line four - the line for additional taxes

2. You will report the first half deduction of SE tax on schedule 1, line 14 - adjustment to income and additional income.


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