J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

45.3 Schedule SE

Schedule SE has an introductory “road map” designed to lead you to either the short or long version of Schedule SE. Once you pass through the road map, the preparation of either the short or long schedule for 2012 is not difficult. On both schedules, you reduce your net profit by .9235 to get your net earnings from self-employment. In other words, only 92.35% of the net earnings is subject to self-employment tax. The .9235 adjustment is the equivalent of a 7.65% reduction to net earnings, which, along with the income tax deduction for the employer equivalent portion of self-employment tax on Line 27 of Form 1040, attempts to place self-employed individuals on the same level as employees subject to FICA taxes.

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2% Reduction

For 2012, the self-employment tax rate reflects a reduction of two percentage points in the employee share of Social Security taxes.

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The .9235 adjustment is made on Line 4 of either the short or long Schedule SE. After the .9235 adjustment is made, net earnings are subject to the 10.4% and 2.9% rates, assuming the resulting net earnings are $400 or more. For 2012, the 10.4% Social Security rate applies to the first $110,100 of net earnings and the 2.9% Medicare rate applies to all of the net earnings.

Special computation for deduction for self-employment tax.

The employer equivalent portion ...