This guide is for freelancers, independent contractors, sole proprietors, and US taxpayers living in Australia with US self-employment filing obligations. Schedule SE is a US federal form. It does not replace Australian tax reporting.
We cover who files, what you need, how the lines work, how amounts flow to Form 1040, and when cross-border facts call for professional review. All dollar amounts are US dollars.
Key Takeaways
- Schedule SE calculates self-employment tax and is filed with your Form 1040, 1040-SR or 1040-SS.
- The calculation starts with net profit, not gross receipts.
- Social Security and Medicare follow different limits, so one rate does not fit every dollar.
- The half-SE deduction lowers income tax, not the SE tax itself.
- Qualifying US citizens living in Australia may be exempt under the totalization agreement.
What Is Schedule SE, Who Must File It, and How Is Self-Employment Tax Calculated?
Schedule SE calculates self-employment (SE) tax, which funds Social Security and Medicare. Federal income tax is separate and is figured on taxable income.
Who files
You generally file if your net SE earnings are $400 or more. That includes:
- Sole proprietors and independent contractors
- Freelancers and gig workers, including side or part-time work
- Partners in a partnership or partnership-taxed LLC
- Owners of single-member LLCs treated as disregarded entities
Missing a Form 1099 doesn't remove the obligation. Church employees have a different trigger: $108.28 or more of church employee income. A low or negative profit does not always mean you can skip Schedule SE, so check the instructions for optional methods and church rules.
How the calculation works
The IRS describes self-employment tax as covering both programs. The framework:
- Take net profit and multiply by 92.35% to get net earnings.
- Apply Social Security at 12.4%, up to the annual ceiling.
- Apply Medicare at 2.9% on all net earnings.
- Add Additional Medicare Tax (0.9%) on Form 8959 if income passes $200,000 (single), $250,000 (joint) or $125,000 (separate). Medicare wages reduce the threshold left for SE income.
- Deduct 50% of SE tax on Schedule 1.
| Item | 2025 | 2026 |
|---|---|---|
| Social Security ceiling | $176,100 | $184,500 |
| Social Security rate | 12.4% | 12.4% |
| Medicare rate | 2.9% | 2.9% |
The 2025 instructions are final. For 2026, confirm Schedule SE amounts against the final IRS instructions before filing, since draft figures can change.
Illustration (2026 parameters): Net profit of $100,000 gives net earnings of $92,350. Social Security is 12.4% of that, or $11,451. Medicare is 2.9%, or $2,678. Total SE tax is about $14,129, and the deduction is about $7,065.
If you also had $100,000 of W-2 wages, the ceiling remaining for SE income would shrink to $84,500, but Medicare still applies to every dollar.
What Information Do You Need Before Completing Schedule SE?
Download the current-year form and instructions, and confirm which return you file: Form 1040, 1040-SR or 1040-SS. Form 1040-NR applies to nonresident individuals, which is a different filing path.
Gather these records:
| Document | Use on Schedule SE |
|---|---|
| Schedule C | Line 31 net profit feeds line 2 |
| Schedule F | Line 34 net farm profit feeds line 1a |
| Schedule K-1 (Form 1065) | Box 14, code A, for partners |
| 1099-NEC, 1099-K, receipts | Income and expense support |
| W-2 | Boxes 3 and 7 feed line 8a |
| Church employee records | Line 5a |
Keep records for every business if you run more than one.
Extra documents for Australian residents
If you live in Australia, also gather:
- Foreign income records and proof of business activity
- An SSA letter of exemption, if you claim the US-Australia totalization exemption
Australia does not issue a certificate for self-employed people, so the exemption letter comes from the US Social Security Administration. Whether the agreement applies depends on your facts and official guidance.
How to Complete Form 1040 Schedule SE Step by Step
Recent Schedule SE forms (2025 final, 2026 draft) have two parts: Part I for self-employment tax and Part II for optional methods. There is no longer a short or long version, so older articles describing them are out of date.
Income lines (1a to 6)
- Lines 1a to 3: Enter farm profit (Schedule F), net profit from Schedule C on line 2, and partnership amounts, then combine them.
- Lines 4a to 4c: Apply the 92.35% adjustment, add optional-method earnings only if eligible and elected, and check the $400 test.
- Lines 5a to 6: Add qualifying church employee income, then total your covered earnings.
Social Security and Medicare lines (7 to 12)
- Line 7: The Social Security ceiling ($176,100 for 2025).
- Lines 8a to 9: Subtract W-2 Social Security wages and tips already taxed to find your remaining ceiling.
- Line 10: Social Security at 12.4% on the lesser amount.
- Line 11: Medicare at 2.9% on all earnings.
- Line 12: Total SE tax, which goes to Schedule 2, line 4.
The deduction (line 13)
Half of SE tax goes to Schedule 1, line 15. It reduces income tax, but your SE tax stays the same.
Typical Schedule C-only filer:
- Complete lines 2, 4a, 4c, 6, 7, 10, 11, 12 and 13
- Leave farm, church, optional-method and W-2 lines blank unless they apply
- Check the IRS instructions for exceptions
Optional Methods and Specialized Parts of Schedule SE
Schedule SE Part II lets eligible taxpayers report more than their actual profit to earn Social Security credits in a low-income or loss year. The catch: it can increase your SE tax.
| Rule | 2025 final | 2026 draft |
|---|---|---|
| Farm eligibility | Gross farm income $10,860 or less, or net farm profit under $7,840 | Gross $11,340 or less, or net under $8,186 |
| Farm optional earnings | Lesser of two-thirds of gross farm income or $7,240 | Lesser of two-thirds or $7,560 |
| Nonfarm profit tests | Net profit under $7,840 and under 72.189% of gross nonfarm income | Under $8,186 and under 72.189% |
| Combined ceiling | $7,240 | $7,560 |
Key limits on the optional methods:
- Nonfarm use needs actual net SE earnings of at least $400 in two of the three preceding years
- Nonfarm use is capped at five years (not necessarily consecutive)
- Farm use has no lifetime limit
- Both methods share one annual ceiling
Don't use 2026 draft figures to file. Use only the final instructions for your tax year.
Special Situations and What Happens After You Complete Schedule SE
Multiple businesses, spouses, partners and religious workers
- Multiple businesses: combine earnings and losses on one Schedule SE per person.
- Spouses: each spouse with SE income files their own Schedule SE, even on a joint return.
- Partners: general partners include their K-1 SE earnings. Limited partners generally include guaranteed payments for services rendered.
- Church employees: qualifying employees use line 5a. Ministers and religious-order members are outside this category.
- Religious exemptions: Form 4361 covers ministers and certain others, and Form 4029 covers qualifying religious groups. Applying is not approval.
Australian-resident US taxpayers
US citizens are taxed on worldwide income, so Australian self-employment income can create a US SE tax question. Three points matter:
- The foreign earned income exclusion can reduce income tax but does not reduce SE tax.
- Under the US-Australia agreement (effective 1 October 2002), a US national residing in Australia is generally exempt from US SE coverage and tax.
- An Australian national living in Australia is covered by neither system for self-employment.
- If fully exempt, skip Schedule SE, attach a statement, check box 3 on Schedule 2, line 4, and enter "Exempt, see attached statement."
Keep a copy of your SSA letter with each return. Request the letter in writing from SSA's Office of Earnings and International Operations in Baltimore, Maryland. Include your citizenship, residence, SSN, activity, start date and business details.
VJM Global works with Australian-based US taxpayers on Schedule SE and cross-border self-employment questions, using US-compliant tax professionals.
After Schedule SE
SE tax flows to Schedule 2, and the deduction flows to Schedule 1. You may also owe estimated tax.
For 2026, you generally need estimated payments when:
- Expected tax is $1,000 or more, and
- Prepayments fall below the smaller of 90% of 2026 tax or 100% of 2025 tax (110% if 2025 AGI exceeded $150,000)
An extension to file doesn't extend the time to pay.
Common Schedule SE Mistakes, Deadlines, and Recordkeeping
Frequent errors
- Using gross receipts instead of net profit
- Entering income from the wrong schedule
- Overlooking W-2 wages already taxed for Social Security
- Applying the wrong year's ceiling or rates
- Using an optional method without checking eligibility
- Not carrying the total to Schedule 2, or forgetting the line 13 deduction
Deadlines
| Item | 2025 tax year | 2026 tax year |
|---|---|---|
| Filing | 15 April 2026 | 15 April 2027 |
| Abroad extension | 15 June 2026 | 15 June 2027 |
| Form 4868 extension | 15 October 2026 | 15 October 2027 (draft) |
Taxpayers living outside the US get two extra months to file and pay, but interest runs from April. 2026 estimated payments are due 15 April, 15 June, 15 September 2026 and 15 January 2027.
Records
The IRS record retention guidance says:
- Keep records three years generally.
- Keep them six years if you underreport income by more than 25%.
- Keep them indefinitely if you filed no return or a fraudulent one.
Hold on to Social Security-related records too, since they support your benefit calculation.
Frequently Asked Questions
What is Schedule SE?
Schedule SE is the form that calculates self-employment tax. It is filed with your individual federal income tax return.
How much is self-employment tax in the USA?
It is 12.4% Social Security (up to the annual ceiling) plus 2.9% Medicare, applied to 92.35% of net profit. Confirm rates and limits in the latest IRS instructions.
What is the filing deadline for self-employed?
The return is due mid-April. Estimated payments follow separate quarterly dates, and an extension to file doesn't extend the time to pay.
Who is not subject to SE tax?
Generally those with net SE earnings under $400, approved religious exemptions, and income exempt under a totalization agreement. Church, partnership and optional-method rules need fact-specific review.
What does 'self-employed' mean?
You carry on a trade or business for yourself. Sole proprietors, freelancers, independent contractors and partners all qualify.
What are the new rules for self-employed people?
The 2026 Social Security ceiling rises to $184,500. Check the current Schedule SE and Form 1040 instructions for changed thresholds and deadlines.
