What is Net Earnings from Self-Employment?

Sole proprietors and partners are subject to self-employment tax if net earnings from self-employment is $400 or more.

If net earnings from self-employment are less than $400 you don't owe self-employment tax and don't have to file Schedule SE. (There is an exception if you had less than $400 and you had church employee income.)

Net earnings from self-employment is the result of multiplying net profit shown on on Schedule C, line 31 (or Schedule F line 34 for farmers) by a fixed percentage of 92.35% (.9235) indicated in Section A-Short Schedule SE, line 4 or in Section B-Long Schedule SE, line 4a.

Schedule C (or F) net profit is computed first then carried to Schedule SE where it is reduced by applying the .92.35% to arrive at " net earnings from self-employment".


Net profit on line 31 of Schedule C is $20,000. Net earnings from self-employment would be $18,470 ($20,000 x .9235). The .9235 adjustment is the equivalent of a 7.65% reduction of Schedule C net profit.

If net profit on Schedule C was $432 or less, net earnings from self-employment would be under $400 and no self-employment tax would be owed,