IRS Schedule SE is used to report and calculate a taxpayer's self-employment tax. Under the default method, a taxpayer pays self-employment taxes on their net self-employment earnings.

There are two optional methods available (the Nonfarm Optional Method and the Farm Optional Method). Under the Nonfarm optional method, the taxpayer calculates their SE income as the lesser of 6,560 or 2/3 of their gross income from Line 7 of Schedule C.

By making this election, the taxpayer will often pay a greater amount of SE taxes, but it will also make the taxpayer more likely eligible to claim the Earned Income Credit and the Additional Child Tax Credit.

In this example, the taxpayer has a net loss from Schedule C, so he decides to make the nonfarm optional method election.

Self-employment taxes are a total of 15.3%, which is 12.4% of Social Security taxes and 2.9% of Medicare taxes.

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