Calculating the SE Tax

Several days ago, our support department asked me to respond to an inquiry from one of our subscribers regarding the calculation of the Self-Employment tax deduction from a parent’s income. It seems that an opposing attorney had challenged our software’s calculation as being inaccurate in that it did not agree with his own manual calculation.  I responded that the Bradley Software child support calculators apply the same criteria set forth by the IRS in 1040 form SE.

The Self-employed individual’s gross income from self-employment (as entered by the user) is first reduced by the reasonable business expenses (as entered by the user). The resulting net income from self-employment is then multiplied by 92.35% (100% less 7.65% – the portion remaining after the deduction of a wage earner’s share of the FICA and Medicare taxes – to obtain the portion of the net SE income subject to SE tax, per IRS regulations). The taxable portion is then multiplied by 12.4% (on the first $106,800) for the FICA (or Social Security) tax, and 2.9% (on all SE taxable net income) for the Medicare tax. Note: the rates and limits are those applicable during 2011; 2012 rates have not yet been finally determined by Congress. The resulting SE tax is then multiplied by 0.5 to arrive at the one-half deductible in computing the parent’s SE income for child support.

The error made by most individuals when trying to “check” the SE tax calculation is failing to multiply the net SE income (after deduction of reasonable business expenses) by 92.35% to arrive at the portion of the SE net income subject to the SE tax.

After twenty years of development of our software, we are confident that the “bugs” have been worked out (i.e., found and corrected), but we’re always willing to test that conclusion, and we welcome our subscriber’s inquiries and suggestions. Thank you for the opportunity.

About Brad Short

CEO : Bradley Software; Of Counsel at Short, Borth & Thilges, Attorneys at Law, LLC, Overland Park, Kansas. Born Birmingham, Alabama, December 27, 1941; admitted to bar,1966, Kansas and U.S. District Court, District of Kansas; 1975, U.S. Court of Appeals, Tenth Circuit; 1976, U.S. Supreme Court. Education: University of Colorado (B.A., 1963; J.D., 1966). Contributing Author, Practitioner's Guide to Kansas Family Law, Kansas Bar Association, 1997. Listed in: The Best Lawyers in America, Family Law, every year from 1987 through 2013. Member, Technology Advisory Committee, Kansas Judicial Council, 1991-1998. Member: Bourbon County, 1966-1977 (President, 1970-1971), Johnson County (Member: Ethics and Grievance Committee, 1984-1998; Family Law Bench/Bar Committee, 1984-), Kansas and American (Vice-Chair, Solo Practitioners and Small Firms Committee, Economics of Law Practice Section, 1984-1985) Bar Associations; Kansas Trial Lawyers Association, 1974-1984 (State Treasurer, 1975-76; Member, Board of Governors, 1974-1984). Fellow, American Academy of Matrimonial Lawyers, 1994-2013 . Practice areas: Family Law.
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