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10651: Schedule SE - Self Employment FAQs


1040 Individual

Review the following sections about self-employment tax and Schedule SE. 

 

Statutory Employee

Statutory employees are not liable for self-employment (SE) taxes because their employers treat them as employees for Social Security tax purposes.

If the Schedule C includes both statutory employee income and income from another source (such as a Form 1099-NEC), the statutory employee status of the Form W-2 income prevents the software from automatically calculating Schedule SE for the Schedule C to which screen W2 is directed, even if it also includes income from a Form 1099-NEC.

Check data entry on screens W2 and 99N. The W-2 will have box 13 checked as statutory employee and 1-9 chosen in the Special tax treatments field. When the W2 and 99N screens are both directed to the same Schedule C, you must use one of the following methods to generate Schedule SE for the non-employee compensation on screen 99N:

  • Open and complete screen SE to create Schedule SE.

  • Open and complete a second C screen. On the 99N screen, select C in the For field and use the Multi-form code field to point the results to the second Schedule C. The software will generate Schedule SE for the second Schedule C.

K1S Income

Income on a K1S screen does not produce Schedule SE because S corporation income is not considered self-employment income. The 1120-S Instructions, explain:

"Unlike most partnership income, S corporation income is not self-employment income and is not subject to self-employment tax."

K1P Income

Schedule SE generates from a K1P screen if there is an amount included on line 14 with code A - Net Earnings (loss) from self-employment. The amount on line 14a may differ from the total income (loss) included on line 1 Ordinary income or loss. Only the income included as SE income will flow to Schedule SE, Section A, Line 1a or 2 depending on if the taxpayer is a general or limited partner. See the Schedule SE Instructions for additional information.

Section 179

Per IRS guidelines, the Section 179 deduction claimed on line 12 only affects the amount on Schedule SE, line 2 (SE earnings) when the partner is a general partner:

"If you are a general partner, reduce this amount before entering it on Schedule SE (Form 1040 or 1040-SR) by any section 179 expense deduction claimed, unreimbursed partnership expenses claimed, and depletion claimed on oil and gas properties. Do not reduce net earnings from self-employment by any separately stated deduction for health insurance expenses."

If the partner is a general partner, check the box General partner on the K1P screen and line 2 will be adjusted by the 179 expense deduction. As indicated above, other amounts may also adjust this figure -- a statement will appear in view to explain the total flowing to line 2.

See KB 10149 for more information about what types of partners are subject to SE tax.

Notary Income

On screen C, the Exempt notary income check box indicates that the taxpayer is only reporting notary income and is not required to pay SE tax. If there is enough income that SE tax would have been incurred, the literal EXEMPT-NOTARY appears on Schedule 2. If there is no other source of income requiring payment of SE tax, the tax line will also show 0.

Foreign Income

According to Publication 54, “You must take all of your self-employment income into account in figuring your net earnings from self-employment, even income that is exempt from income tax because of the foreign earned income exclusion.”

For this reason, the software calculates SE tax on foreign income, regardless of whether the Foreign Earned Income Exclusion is claimed on screen 2555. Exceptions to SE tax are listed in the Schedule SE Instructions.

If the income was earned abroad, and self-employment taxes were paid to a foreign country, you can use the Exempt Foreign section on the SE screen to make adjustments. A copy of the foreign form showing SE tax paid to a foreign country must be attached to the 1040 return.

CAUTION  ​If you use this field, the return cannot be e-filed.

If the foreign compensation was entered on the FEC screen, and it is not subject to SE tax, then you can use the check box to the right of the compensation to indicate that the income is NOT subject to self-employment tax.

For more examples and information, see Publication 54.

Paper boy

If the taxpayer is under age 18 and is delivering newspapers to customers, check the box Paper route excluded from SE on the C screen.

Loss instead of a gain

If the business expenses exceed the income, and there is a loss reported on Schedule C, Schedule SE is not produced as a loss is not subject to SE tax.

Income under $400

Generally, if the income is less than $400, the taxpayer does not owe SE tax. An exception to this guideline is for church employee income of $108.28 or more. See the Schedule SE Instructions for details.

Clergy

Some members of the clergy are not subject to SE Tax. Check for the following entries that indicate that the self-employment is not subject to SE Tax.

  • On the C screen, business code 813000 is used for Religious, grant making, civic, professional, & similar orgs.

  • On the C screen, the Clergy Schedule C drop list is Yes.

  • On screen SE the box IRS Approved Form 4361 – Minister claims exemption from SE tax is marked.

Force Print

Use the Force Schedule SE to be produced box for taxpayer or spouse on screen SE to generate Schedule SE in View/Print mode.


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