There is not a software algorithm issue with TurboTax.
If your self-employment income is $40,000 your self employment tax would be about 15% of that. After you deduct your standard deduction of $16,400, assuming you are single, the difference would be your taxable income on which your income tax rate of 10 - 12% would be assessed. Since the 15% was assessed on your net self-employment income before your personal deductions, it would be much more than 15% when compared to your net taxable income. So, 15% plus 12% plus taking into consideration the fact that the 15% will be much more when you factor in personal deductions, could easily get you to the 32% you mention.
Also, the self-employment tax is not an income tax, it goes to your social security retirement fund. So, it is not accounted for in the income tax rate schedules.
@Ipalav
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