Schedule SE optional methods: $7,560 in 2026, $7,880 in 2027

Part II of Schedule SE is easy to skip, and for good reason: the lines are blank for nearly everyone, because the optional methods usually raise your self-employment tax rather than lower it. But they solve a real problem. If a business earns almost nothing in a year, you can end up with no Social Security credit for it, and a few such years can leave a gap in the 40 credits that retirement benefits generally require. Part II is the remedy the tax code provides, and the numbers on it look arbitrary until you see where they come from.

The 2026 form and instructions are both final, not drafts; the instructions carry an October 28, 2026 date stamp. Part II is unchanged from 2025 except for the indexed dollar amounts.

What Part II says, line by line

Everything below is on page 2 of the 2026 Schedule SE. The farm block reads: “Farm optional method. You may use this method only if (a) your gross farm income wasn’t more than $11,340, or (b) your net farm profits were less than $8,186.” Then:

• Line 14, “Maximum income for optional methods”: $7,560, printed on the form.
• Line 15: “Enter the smaller of: two-thirds (2/3) of gross farm income (not less than zero) or $7,560. Also, include this amount on line 4b above.”
• Line 16: “Subtract line 15 from line 14.”
• Line 17: “Enter the smaller of: two-thirds (2/3) of gross nonfarm income (not less than zero) or the amount on line 16. Also, include this amount on line 4b above.”

The nonfarm block carries its own test: “(a) your net nonfarm profits were less than $8,186 and also less than 72.189% of your gross nonfarm income, and (b) you had net earnings from self-employment of at least $400 in 2 of the prior 3 years. Caution: You may use this method no more than five times.”

The footnotes say where to find the inputs. Gross farm income is Schedule F, line 9. Net farm profits are Schedule F, line 34, minus what you would have entered on Schedule SE line 1b had you not used the method. For the nonfarm method, net profit is Schedule C, line 31, and gross income is Schedule C, line 7. Partners use the matching Schedule K-1 (Form 1065), box 14 codes. Our Schedule C 2026 walkthrough covers the rest of that form, including where the line 31 profit flows.

How the two methods work

The farm method is the simpler one. Report two-thirds of gross farm income, capped at $7,560, as your net earnings. The instructions add that it “can increase or decrease your net earnings from farm self-employment even if the farming business had a loss.” A farmer with $10,000 of gross income and a loss for the year reports about $6,667 on line 15. There is no limit on how many years you can use it.

The nonfarm method is narrower. It fills only the room the farm method leaves: line 16 subtracts line 15 from the $7,560 maximum, and line 17 takes the smaller of that room or two-thirds of gross nonfarm income. If you use both, the instructions say “you can’t report more than $7,560 of net earnings from self-employment.” Two traps are worth knowing. You can’t report less than your actual nonfarm net earnings, and the method requires you to be “regularly self-employed,” meaning $400 or more of actual net earnings in 2 of the 3 years immediately before. Those earnings can come from farm or nonfarm work.

On the front page, lines 15 and 17 are added into line 4b, and line 4c combines 4a and 4b. The form tells you to “Skip line 2 if you use the nonfarm optional method.” In other words, the substitute amount replaces the ordinary Schedule C profit on that line rather than adding to it.

Where the thresholds come from

The IRS doesn’t pick these numbers; a formula in 26 U.S.C. 1402(l) produces them. The statute says: “The lower limit for any taxable year is the sum of the amounts required under section 213(d) of the Social Security Act for a quarter of coverage in effect with respect to each calendar quarter ending with or within such taxable year,” and “The upper limit for any taxable year is the amount equal to 150 percent of the lower limit for such taxable year.”

Translated: the lower limit is four quarters of coverage, which is line 14. The upper limit is 150 percent of that, which is the farm gross-income test. The net-profit test is a conversion. The law speaks of net earnings, which are 92.35 percent of Schedule C profit, so the profit-based test works out to the lower limit divided by 0.9235; the printed figures match that division. The 72.189 percent is the same conversion applied to the statute’s second nonfarm test, net earnings of less than 66⅔ percent of gross income: two-thirds divided by 0.9235. Here is the check, run against the printed forms for 2022 through 2026:

QC = {2022: 1510, 2023: 1640, 2024: 1730, 2025: 1810, 2026: 1890, 2027: 1970}
for year, qc in QC.items():
    line14 = 4 * qc                       # 1402(l)(1): four quarters
    farm_gross = 1.5 * line14             # 1402(l)(2): 150 percent
    net_profit = round(line14 / 0.9235)   # lower limit expressed as profit
    print(year, line14, int(farm_gross), net_profit)
print(round(100 * (2 / 3) / 0.9235, 3))   # 72.189

Each 2022 to 2026 row matches the dollar amounts printed on that year’s form, which I checked. For 2025 the division gives 7,839.74, and the form prints $7,840, so the IRS rounds to the nearest dollar rather than truncating. The 2027 row is a projection, not an IRS number. Its one input is official: the Social Security Administration’s notice in the Federal Register on October 26, 2026 says “the taxable earnings a person must have in 2027 to be credited with a quarter of coverage will be $1,970,” after a formula that “produces $1,972.59” and is rounded. The IRS draft of the 2027 Schedule SE is not out yet. If it prints something different, trust the form. The same quarter-of-coverage figure appears in our 2027 Social Security figures tracker.

A worked example: what four credits cost

Take a self-employed designer in 2026 with $12,000 of gross income (Schedule C, line 7) and $3,000 of net profit (line 31), who had actual net earnings from self-employment of $400 or more in each of the prior three years and hasn’t used the nonfarm method before. She passes both tests: $3,000 is below $8,186 and below 72.189 percent of $12,000, or $8,662.68.

gross, profit = 12000, 3000
regular = profit * 0.9235             # line 4a: 2,770.50 net earnings
optional = min(2/3 * gross, 7560)     # line 17: 7,560 (2/3 of gross is 8,000)
def line12(e):                        # no W-2 wages, so line 9 is $184,500
    return round(e * 0.124, 2) + round(e * 0.029, 2)   # line 10 + line 11
print(round(line12(regular), 2), round(line12(optional), 2))
# 423.88 1156.68
print(round(line12(optional) - line12(regular), 2), optional / 1890)
# 732.8 4.0

With no wages, line 9 is $184,500, so line 10 is $7,560 times 12.4 percent, $937.44, and line 11 is $7,560 times 2.9 percent, $219.24. Self-employment tax on line 12 is $1,156.68, and the deduction on line 13 is $578.34. The regular method would have produced $2,770.50 of net earnings and $423.88 of tax ($343.54 on line 10 plus $80.34 on line 11). The extra cost is $732.80, and the earnings reported rise from one credit’s worth (the whole credits in $2,770.50 at $1,890 each) to the full four ($7,560 divided by the 2026 requirement of $1,890). Whether that’s a good price depends on how close she is to 40 credits and whether she expects other work to fill the gap. Her $3,000 of Schedule C profit doesn’t change, but her AGI does: the line 13 deduction rises from $211.94 to $578.34, which lowers AGI by $366.40 and can trim any income tax she owes.

The other case where the method pays is the earned income credit. The instructions say the optional methods may qualify you for the EIC, the additional child tax credit or the child and dependent care credit, “or give you a larger credit if your net earnings from self-employment (determined without using the optional methods) are less than $7,560.” Their advice is to figure each credit with and without the methods. The credit table is in our earned income credit guide, but the answer depends on your whole return.

Rules that catch people

• The five-time limit is for life. It counts years of use, not consecutive years.
• You can undo it. File Form 1040-X to move between methods after you file.
• The tax is the full rate. Line 4b isn’t multiplied by 92.35 percent. Unless your W-2 wages already reach the $184,500 wage base, every dollar on it carries the full 15.3 percent, which is why a maximum use costs $1,156.68 in 2026 and would cost $1,205.64 on my 2027 numbers. The mechanics of that rate and of the wage base are in our FICA explainer.
• It can lower AGI. The instructions also say the methods may feed the self-employed health insurance deduction and may decrease your AGI, which can affect credits and deductions with AGI limits.

Sources

• IRS, 2026 Schedule SE (Form 1040), final, pages 1-2 (PDF of November 3, 2026) — https://www.irs.gov/pub/irs-pdf/f1040sse.pdf
• IRS, 2026 Instructions for Schedule SE (Form 1040), final, pages 5-6 (October 28, 2026) — https://www.irs.gov/pub/irs-pdf/i1040sse.pdf
• IRS, 2022 to 2025 Schedule SE (Form 1040), Part II — https://www.irs.gov/pub/irs-prior/f1040sse—2025.pdf (and the same file names for 2022, 2023 and 2024)
• 26 U.S.C. 1402(a) and (l), Legal Information Institute — https://www.law.cornell.edu/uscode/text/26/1402
• Social Security Administration, Cost-of-Living Increase and Other Determinations for 2027, Federal Register 2026-21796 (October 26, 2026) — https://www.federalregister.gov/documents/2026/10/26/2026-21796/cost-of-living-increase-and-other-determinations-for-2027