If you are an independent contractor working for multiple clients on a freelance basis, you need to file a Schedule SE tax form to report your income earned from several sources. It combines Medicare and Social Security, much like the taxable amount withheld by the company you are working for.
Self-employment tax must be filed with your income tax, meaning each form must be filled out and submitted to the IRS separately. That’s what Schedule SE or Self-employment tax return form is used for. It is for freelancers who report income exceeding $400 from self-employment. The question is, “what exactly does self-employment mean, and how do you know if you should file Schedule SE”?
Understanding Schedule SE
First things first, Schedule SE can be used to report multiple sources of income, but when calculating the taxable income, you need to combine each and fill out a single SE form.
The profit you earn for yourself as a freelancer, independent contractor, sole proprietor, or member of a partnership company will be considered self-employment income. It’s important to calculate your income before filing this tax form. It should meet the minimum $400 threshold set forth by the IRS to be considered taxable.
Earlier, people had to fill out a lengthy and comprehensive form, although a shorter version was also available. Now, it has been divided into two sections, Part I and Part II. The second part is optional. The long form of Schedule SE is available for employees working for someone and generating self-employment income simultaneously. Use the Long Schedule SE form to ensure you don’t overpay taxes on your self-employment income. Here’s what is not included in the Schedule SE form.
Rental income from real estate (unless you are a professional real estate dealer)\
Dividends from the stock you own
A limited partnership
Interest earned on the loan
Capital gains
There are several deductions, especially your business expenses, such as marketing campaigns, insurance, and employee benefits. Deductions also include your home-business expenses for assets that you frequently use for business. The information on the Schedule SE form can be found on your personal tax return documents, i.e., the 1040 form for normal US residents and the 1040-SR for senior citizens.
Note that the taxable income is calculated from the net self-employment income you have generated for the financial year and is only for those who report income meeting the $400 threshold. You must follow the instructions for Schedule SE form carefully when filling out the form line-by-line. Currently, the tax percentage for self-employed individuals is 15.3% on your net income from all sources.
As mentioned earlier, you need to calculate the net income by adding your earnings from each source that’s counted as self-employment. It has to be filed with form 1040 tax return on April 15. The tax allows 50% deductions. If your income from these sources exceeds $115,000, you can opt for the shorter version. Download this form from the IRS website.