Your client nets $90,000 on Schedule C, drops $7,000 into a simplified employee pension (SEP)-IRA, pays her own health premiums, and parks $4,300 in an health savings account (HSA). Six adjustments hit Schedule 1 Part II before AGI lands.
Schedule SE applies to net SE earnings of $400 or more. Multiply net Schedule C (or Schedule F, or partnership K-1 line 14a SE income) by 92.35% to get net SE earnings. Apply 12.4% Social Security up to the $176,100 wage base (reduced by W-2 wages already taxed for SS) plus 2.9% Medicare uncapped. Combined 15.3%.
Above $200,000 single / $250,000 MFJ / $125,000 MFS the 0.9% Additional Medicare Tax stacks. It is NOT deductible.
Half of the 15.3% portion deducts on Schedule 1 line 15.
KEY: SE tax is owed even when AGI is zero. It computes before income tax and is not eliminated by the standard deduction.
Common mistakes
- Deducting the 0.9% Additional Medicare Tax as part of ½SE-tax. Only the 15.3% base deducts; the surtax never.
- Claiming SE health insurance for a month a spouse was eligible (not enrolled) for subsidized coverage. Eligibility disqualifies.
- Funding a traditional IRA with rental, dividend, or Social Security income. Earned compensation only.
Bottom line
- SE tax 15.3% on 92.35% of net SE earnings (12.4% SS to $176,100, 2.9% Medicare uncapped); half deducts on Schedule 1, the 0.9% surtax never
- Traditional IRA $7,000 / $8,000 if 50+; active-participant phaseout $79K to $89K single, $126K to $146K MFJ; earned compensation required
- HSA $4,300 self / $8,550 family + $1,000 catch-up at 55; HDHP required, no Medicare, not a dependent; eligibility tested first day of each month
- SE health insurance 100% deductible, capped at net SE less ½SE-tax less retirement deduction; no subsidized employer alternative; excess moves to Schedule A
Exam shortcut
0.9235 × 0.153 = 0.1413. Multiply net Schedule C by 0.1413 to estimate SE tax, then halve for the adjustment. "Earned" filter. Not W-2 wages, net SE, or pre-2019 alimony = cannot fund an IRA. HSA needs HDHP, not earnings. SE health insurance gate. Three yes/no questions: trade or business, plan in business's name (or S-corp W-2), no subsidized alternative this month. All three yes = deduct.
The full lesson (about 2,062 words, 14 min read) adds 3 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
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