Choose from the following frequently asked questions about self-employment tax and Schedule SE.
Why is the long form of Schedule SE being produced?
If net profit from the business exceeds the social security limit, the software produces the long form to help you explain the calculation to the taxpayer. In view, both forms are labelled Schedule SE. Taxpayer use of the short form is permissive, not required. If you would like to see the long form instead of the short form, go to the SE screen and check the box Force Schedule SE, page 2 instead of page 1.
In a return with a W2 marked "statutory employee" flowing to a Schedule C, how can I generate Schedule SE for non-employee compensation from a 1099-MISC that also goes to that Schedule C?
Statutory employees are not liable for self-employment (SE) taxes because their employers treat them as employees for Social Security tax purposes. In this situation, the statutory employee status of the W2 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 1099-MISC.
Check data entry on screens W2 and 99M. 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 99M screens are both selected for the same Schedule C, you must use one of the following methods to generate Schedule SE for the non-employee compensation on screen 99M:
- Open and complete screen SE to create Schedule SE.
- Open and complete a second C screen. Open the 99M 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.
Why is Schedule SE not being produced for K-1 income from an S corporation?
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."
Does Schedule SE generate for K-1 income from a partnership?
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 2.
How do I get the 1040 to show Schedule C income for a notary is exempt from self-employment taxes?
On screen C, towards the center of the bottom of the screen, you will see an Exempt notary income checkbox. If there is enough income that SE tax would be incurred, the literal EXEMPT-NOTARY appears on line Schedule 4, line 57 (Form 1040, line 57 in Drake17 and prior). It will appear to the left of where the SE tax would be displayed. The field may be display zero if there is no other source of income requiring payment of SE.
Why am I getting a self-employment tax on foreign income?
According to Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, “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.”
An example listed by the IRS is:
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 instructions for Schedule SE under "Who Must File Schedule SE."
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.
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 checkbox 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 and the Schedule SE instructions.
How do I enter the deferral of SE payments under the CARES Act guidelines (Drake20)?
According to the IRS, "Self-employed individuals may defer the payment of 50 percent of the Social Security tax imposed under section 1401(a) of the Internal Revenue Code on net earnings from self-employment income for the period beginning on March 27, 2020 and ending December 31, 2020." See Section 2302 of the CARES Act for details.
In Drake20, Part III of the SE screen is used to enter information related to this deferral. The deferral is optional. If a taxpayer chooses to take advantage of this deferral, 50% of the deferred tax will be due by December 31, 2021 and the remainder will be due by December 31, 2022.
- Use line 18 to enter the portion of the amount from line 3 of Schedule SE that is attributable to the deferral period.
- Use line 20 to enter the portion of the amount from lines 15 & 17 of Schedule SE that is attributable to the deferral period.
- Use line 22 to enter the portion of the amount from line 5a of Schedule SE that is attributable to the deferral period.
A taxpayer may use any reasonable method to determine what portion of net self-employment income is attributable to the deferral period.
Amounts computed on Schedule flow to Wks Deferral. Enter the amount the taxpayer wishes to defer from line 10 of that worksheet on screen 5, line 12e.