18.3 Self-Employment Tax (Schedule SE)
Key Takeaways
- SE tax = Social Security (12.4%) + Medicare (2.9%) = 15.3%.
- Calculated on 92.35% of net profit.
- Social Security wage base for Tax Year 2025: $176,100.
- Maximum SS portion of SE tax 2025: $21,836.40 (= $176,100 × 12.4%).
- SE tax required if net earnings ≥$400.
- Deduct 50% of SE tax as adjustment to income.
- Additional 0.9% Medicare tax above $200k/$250k/$125k thresholds.
Why This Matters for the Exam
SE tax is heavily tested. The exam tests the rate, the 92.35% multiplier, the wage base, and the 50% deduction.
Expect at least 3-4 questions on SE tax.
What Is Self-Employment Tax?
When self-employed, you pay both the employer and employee shares of FICA:
| Component | Rate | Combined |
|---|---|---|
| Social Security (OASDI) | 12.4% | |
| Medicare (HI) | 2.9% | |
| Total SE Tax | 15.3% |
The Calculation Process
| Step | Description |
|---|---|
| 1 | Start with Schedule C net profit |
| 2 | Multiply by 92.35% |
| 3 | Apply rates (12.4% + 2.9%) |
| 4 | Apply Social Security cap |
| 5 | Deduct 50% on Schedule 1 |
Why 92.35%?
| Reason | Calculation |
|---|---|
| Employees | Don't pay tax on employer's 7.65% |
| Self-employed | Get same benefit (§1402(a)(12)) |
| 100% - 7.65% | = 92.35% |
Social Security Wage Base (Tax Year 2025)
| Element | Amount |
|---|---|
| Wage base | $176,100 (up from $168,600 in 2024) |
| 12.4% applies to | First $176,100 of net SE earnings |
| Above $176,100 | Only 2.9% Medicare |
| Max SS portion of SE tax | $21,836.40 |
The $400 Rule
| Net Earnings | SE Tax Required? |
|---|---|
| < $400 | No |
| ≥ $400 | Yes |
Additional Medicare Tax
High earners pay an additional 0.9% Medicare tax (thresholds NOT inflation-adjusted):
| Filing Status | Threshold |
|---|---|
| Single/HOH | $200,000 |
| MFJ | $250,000 |
| MFS | $125,000 |
The 50% Deduction
| Location | Treatment |
|---|---|
| Schedule 1 | Adjustment to income |
| Effect | Reduces AGI |
| Not Schedule C | Not a business expense |
SE Tax Calculation Example (Tax Year 2025)
| Item | Calculation | Amount |
|---|---|---|
| Schedule C net profit | $100,000 | |
| × 92.35% | $100,000 × 0.9235 | $92,350 |
| Social Security | $92,350 × 12.4% | $11,451 |
| Medicare | $92,350 × 2.9% | $2,678 |
| Total SE Tax | $14,130 | |
| 50% deduction | $14,130 × 50% | $7,065 |
High Earner Example (Tax Year 2025)
| Item | Calculation | Amount |
|---|---|---|
| Schedule C net profit | $200,000 | |
| × 92.35% | $184,700 | |
| Social Security (capped at $176,100) | $176,100 × 12.4% | $21,836 |
| Medicare (full) | $184,700 × 2.9% | $5,356 |
| Total SE Tax | $27,193 |
Tips and Overtime: Still SE / FICA Wages
The new OBBBA "No Tax on Tips" and "No Tax on Overtime" deductions are income tax deductions only. Self-employed taxpayers still owe full SE tax on tip income reported on Schedule C. W-2 employees still have FICA withheld on tips and overtime.
Real-World Scenario
Scenario: Sole proprietor has $100,000 net profit from Schedule C in 2025.
- Step 1: $100,000 × 92.35% = $92,350 net SE earnings.
- Step 2: Under $176,100 wage base, so full 15.3% applies.
- Step 3: $92,350 × 15.3% = $14,130 SE tax.
- Step 4: $14,130 × 50% = $7,065 deduction on Schedule 1.
On the Exam
Expect 3-4 questions on SE tax, typically:
- First Step Questions: "What is the first step in calculating SE tax?"
- Rate Questions: "What is the total SE tax rate?"
- Wage Base Questions: "What happens above the wage base?"
- Deduction Questions: "Where is the 50% deduction reported?"
The key is to remember: 15.3% total. Calculate on 92.35% of net profit. SS capped at $176,100 (Tax Year 2025). Deduct 50% on Schedule 1.
Sole proprietor has $100,000 net profit. First step in SE tax calculation?
Self-employed with $200,000 net SE earnings in 2025. Social Security tax treatment?
Where is the 50% SE tax deduction reported?