Chapter 45 Figuring Self-Employment Tax
Self-employment tax provides funds for Social Security and Medicare benefits. The self-employment tax is calculated on Schedule SE. You are required to prepare Schedule SE if you have self-employment net earnings of $400 or more in 2016, but you will not incur the tax unless your net self-employment earnings exceed $433.13. The tax is added to your income tax liability. When preparing your estimated tax liability, you must also include an estimate of self-employment tax; see Chapter 27.
On Schedule SE, self-employment income is reduced by a deduction reflected in the decimal of .9235 listed on the form. You also deduct the employer-equivalent portion of the self-employment tax on Line 27 of Form 1040.
For 2016, the self-employment tax of 15.3% consists of the following two rates: 12.4% for Social Security and 2.9% for Medicare. After multiplying the net earnings by .9235, the combined 15.3% rate applies to a taxable earnings base of $118,500 or less; the 2.9% rate applies to all taxable earnings exceeding $118,500.
You are required to pay self-employment tax on self-employment income even after you retire and receive Social Security benefits.
45.1 What Is Self-Employment Income?
On Schedule ...
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