US tax laws can be confusing. There’s a lot of specifics, and the language surrounding these specifics is pretty complicated—particularly when it comes to the self-employment tax on US citizens abroad. So, how does all this actually work? For starters, unfortunately, you still have to pay US taxes on foreign income if you are a freelancer, independent contractor, digital nomad, or entrepreneur abroad. And yes, US tax laws apply no matter where in the world you live and perform the work.
The self-employment tax is a Social Security and Medicare tax on net self-employment income. You must pay this tax if your net self-employment earnings are at least USD$400 in a year. But don’t panic, we know the ways to ease the burden and legally minimize the self-employment tax on foreign income for Americans abroad.
Contact us if you want to receive a free email consultation. Or, keep reading for a few helpful tips and tricks that will help you navigate the murky waters of United States tax laws.
1. Filing requirements for self-employment taxes if you’re a US citizen abroad
You fall under a different filing threshold category if you are a self-employed US person who resides abroad. As we mentioned earlier, earning USD$400 in a year already triggers a filing requirement for a tax return. As the US is one of the two countries which practice citizen-based taxation, it’s necessary —and essential— to take care of US tax obligations even while living abroad.
Who does the IRS consider to be self-employed? If you belong to any of the following categories, you’re self-employed and need to file your taxes appropriately:
- A member in a LLC, depending on how the LLC elects to be treated for tax purposes
- Independent contractor
- Sole proprietor
- Partner in a business partnership
- Freelancer.
The self-employment tax rate is 15.3% of net earnings up to a base amount. The base amounts are US$128,400 in 2018 and US$132,900 in 2019. The rate consists of 2 parts: 12.4% goes toward Social Security (old age, survivors and disability insurance) and 2.9% covers Medicare hospital insurance). That means the Social Security portion applies only to the first $128,400 of your foreign self-employment income (for the 2018 tax year). And Medicare applies to any amount thereafter.
Additional Medicare tax: If you make more than the base amount limits, the excess of wage limits will be taxed at 2.9%. Depending on your income, you might be also subject to Additional Medicare Tax (AMT). The current rate is 0.9% and it applies to individuals who earn above a certain threshold, based on filing status.
The self-employed tax on US citizens abroad requires you to pay AMT if you earn more than the following amounts: $250,000 for married filing jointly and $200,000 for single filers. While Medicare Tax doesn’t have limits, a certain amount of your income will be subject to Social Security tax.
You do not take the Foreign Earned Income Exclusion into consideration when figuring net earnings.
2. What about Social Security tax for Americans residing abroad?
Americans abroad often need to pay Social Security tax regardless of where they work and live.
While residing abroad, many US expats have to contribute to their foreign country’s social insurance systems. It’s done to cover the benefits you might be receiving while living in a foreign place. This is where expats get taxed twice because they have to pay both US Social Security tax and to the current residence country.
But there’s an upside: To eliminate dual taxation of US citizens and GreenCard Holders living abroad, the US has Social Security Agreements with a number of countries. If you are employed by a foreign employer, including a foreign subsidiary of a US company, you won’t be subject to U.S. Social Security Tax in most cases.
Social Security Totalization Agreements
While there are income tax treaties with a large number of countries, they do not cover Social Security taxation in two countries on the same income. That’s why the US has separate Social Security Totalization Agreements with 29 countries:
- South and North America: Brazil, Chile, Uruguay, Canada
- Europe: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, United Kingdom
- Asia and Oceania: Australia, Japan, South Korea
Social Security Totalization Agreements (SSTA) with the above mentioned countries help prevent double Social Security Taxation. In this case, you are only subject to the host country SS tax. However, in some cases if you’re sent on a temporary assignment to one of these 29 countries, then you may qualify for an exception and pay FICA tax (Federal Insurance Contributions Act, the name of the law that created Social Security in the US) instead. The agreements indicate that if an individual is sent abroad on a contract or does not intend to stay overseas for more than 3 to 5 years, they will pay into Social Security of their home country.
Social Security tax fact: If you are working in a country that has an SSTA with the United States, then you are exempt from FICA tax. Generally, you can claim the foreign country’s Social Security tax as an addition to your foreign tax credit. But keep in mind that FTC offsets your US regular income tax liability and not your FICA taxes.
3. How to reduce self-employment tax on foreign income
Generally speaking, there are a few advantages for Americans abroad who are foreign employees over self-employed ones when it comes to US taxes. You may be subject to self-employment taxes if you are:
- A freelancer or independent contractor
- A sole proprietor
- A member of a general partnership
- A member of an LLC that is considered a disregarded entity for tax purposes
However, there are ways to minimize your tax burden triggered by self-employment tax laws. Can you avoid SE tax if you are self-employed working for a foreign company? You can’t avoid this entirely, but there are a few ways to save money on your tax bill in the long term.
Let’s break it all down.
LLCs vs S-Corporation
LLCs: A limited liability company (LLC) is not a separate tax entity. As a consequence, with an LLC, the income passes through to the owner, who has to pay 15.3% self-employment tax. As the owner who resides abroad, you can use the Foreign Earned Income Exclusion to minimize income tax but not self-employment tax.
The IRS considers single-owner LLCs as sole proprietorships for tax purposes. So you need to report all profits or losses of the LLCs on Schedule C. And then you attach it to the 1040 tax return. However, if you have profits in your company’s bank account at the end of the year, you will need to pay income tax on it.
Domestic LLCs are automatically considered to be disregarded entities. If you want the same election for a foreign LLC, you will need to file Form 8832 once and then another Form 8858 every year. In the cases where you decide not to have your LLC disregarded, you must file Form 5471, which is a lot more complicated.
S-Corp: As we already know, the self-employment tax on US citizens living abroad applies to earned income. If you form an S-Corporation and your clients pay not you directly but the S-corp instead, then it’s not earned income for you – yet. But you still should pay your personal bills, correct? For that you would need earned income. You can do the following: divide those payments and pay yourself a percentage as a “salary” and the balance as dividends. The “salary” portion will be subject to self-employment income as it is classified as “earned income”.
What happens to dividends? They aren’t taxed as self-employed income. Thus you have reduced your net earnings by whatever percentage you took as dividends.
Self-employment foreign income tax fact: There is a new Repatriation tax, which you may be subject to depending on the ownership in the company. It applies to US owners of foreign businesses.
4. Where to establish a foreign company?
If you are a nomad, moving from one country to another and you don’t stay in any one place long enough to establish an official tax residency, then this strategy might work for you. You can employ yourself in a foreign corporation. We recommend establishing one in a country with tax advantages and low operating costs. You can have a foreign corporation, which owns a US LLC and you use the latter one to sell your products. But this all depends on your particular business needs.
This option might cost a few thousand dollars to set up correctly and maintain. But there is a possibility it will be cheaper than paying foreign self-employment income taxes. Caribbean islands and particularly Belize is an easy country to incorporate and bank with no income tax. However, they lack the prestige of other popular jurisdictions. Hong Kong is a popular place to establish a company but it’s getting harder with FATCA regulations. HK doesn’t impose taxes on those with no HK income, but you have to qualify for this exception. The country of Georgia is also one of the options with their foreign-friendly jurisdiction.
If you decide to form a company in more business-friendly countries, i.e. the United Kingdom or Estonia, you probably won’t need an LLC. While these countries have a corporate income tax (around 20%), that only applies to corporate net profits. You can pay yourself nearly all the income of the business as a salary. In this case the corporate profit will be quite a small amount.
Keep in mind, the strategies we mentioned above only apply to businesses where you offer services. The US has a concept, which bans directing the income to another person than the one who performs the services. Since a corporation is a separate legal person, running the income through it won’t be in accordance with US tax law.
5. Deductions for ordinary and necessary expenses
One of the ways to save money on your tax bill is to take advantage of business expenses. We have already learned that Foreign Earned Income Exclusion can lower your income tax liability, but what about other available deductions?
The IRS allows you to deduct ordinary and necessary expenses—and it’s important to know the distinction.
Ordinary expenses are commonly used and accepted by your business industry standards. The expenses are frequent and ongoing—and critical to your trade to run the business. However, ordinary expenses should also be necessary in order to deduct them from your business taxes.
Necessary expenses are considered to be helpful and appropriate in running your business. Again, you cannot deduct necessary expenses if they are not ordinary expenses also.
Does it all sound too complicated for you? Well, here are a few examples that might help you understand what qualifies as ordinary and/or necessary expenses: advertising, supplies, rental of office space and equipment, taxes and licenses etc. You will need to use Schedule C to deduct these expenses. You will also need to pay SE tax before you can apply FEIE or FTC.
Summary of the self-employment tax on US citizens abroad
Being a US entrepreneur or freelancer while living abroad is a rewarding experience. Hoping that the IRS will not find out about your foreign self-employment income is a bad idea in general. The IRS will impose heavy fines if they catch you under-reporting self-employment income or not reporting it at all. Do you know that they can go back as many years as they want? Even past the 7 year statute of limitations.
While we described a few ways to reduce your self-employment tax liability, it’s extremely important to seek professional tax advice before you proceed with any of the above-mentioned strategies. There are some issues to consider beyond taxes and we strongly recommend consulting tax professionals.
At 1040 Abroad, we have tax experts who help Americans abroad to minimize their tax burden on a daily basis. Contact us now and schedule a free consultation to discuss the best solutions.
I’m a US expat working as an independent contractor for a UK company and operate simply as a sole trader when I file my UK tax self assessment tax.
Am I only required to file form 8858 if I set up as an LLC/Ltd while working abroad for US tax purposes?
Hi Gigi! If you set up an LLC/ltd in the UK, it will be treated as a foreign corporation triggering an additional filing requirement of a complicated form 5471 (We charge $500 for this form alone). If you’re sole trader you can report your income on Schedule C.
Hi I’m from the US but I spent most of 2019 in Thailand. I work remotely for an American ESL company. My Tax Expert from H&R Block claims I’m not eligible for the CTC because my daughter spent less than 6 months in the US. Is this true? Am I ineligible for the credit because of the amount of time spent outside the US?
Hi Lavonatae! Yes, nevertheless there is the additional child tax credit that you are eligible to claim. You cannot use the FEIE to lower your taxable income. You can only use the foreign tax credit to offset your US tax liability and claim the ACTC.
Hi Olivier, i’m a freelancer living in France, one of the countries with the Social Security Totalization Agreements. My business is pure service, and I do all my work from France. Do I still need to pay US self-employment tax? I already pay them in France.
Thanks, N
Hi N! No, you don’t need to pay the SE tax because France has signed the totalization agreement.
thanks so much for your response 🙂
Hi N! Happy to help.
Hi Olivier, I have the same situation as N above, but living and working completely in Switzerland. In TurboTax though it seems to suggest that I need to declare all income and expenses itemized and that I still have some Federal tax to pay? (Although I am below the threshold and have never previously had to pay).
Hi D! You should contact TurboTax support as we use different software.
Hello! I work online as an English teacher, but I don’t work for a company, so it’s my understanding that I’d be considered self-employed. I live in Spain and I’m a resident here, but I’m also a US citizen. Should I file in the US? Thanks!
Hi Laura,
You must file a tax return if you had more than $400 of self-employment income during the year. You won’t be subject to the self-employment tax because Spain has signed a totalization agreement with the US.
Hi Oliver, I’m resident of Iceland and freelance to Icelandic companies my services. I’ve already paid all related taxes to the Icelandic government for my services, but I’m told that I also now have to pay the US self-employment tax, is this correct? I’m looked at as a sole proprietor by the way.
Hi Clay,
Iceland has signed a totalization agreement with the US in 2016, which entered into force in March 2019. It means that if you pay self-employment tax to Iceland, you won’t be subject to the US self-employment tax.
Hi Olivier!
I am a US citizen living in France as a resident as well. I am doing contract work (pure services) for a company based in the US. Will I still be able to avoid double taxation with the totalization agreement for this work? I am just a little bit confused, since I am not making money from a company in France, but instead in the US.
Hi Lauren!
France has signed the totalization agreement with the US, so if you pay self-employment tax in France, you don’t need to pay it again to the US.
Have a lovely day!
Hello there, I have a trade license/business license allowing me to freelance in the Czech Republic. I’ve had it for the tax year of octover 2019 to dec 2019. I’ve made under 5000 usd. What forms do I need to file to the Irs?
Hi Tyler! The federal tax return is form 1040.
The trade liscence is for the CZ not America, is 1040 the only form I need to file?
Thanks for the info Oliver! Navigating these waters is quite the challenge!
Hi Tyler! The additional forms you might need to file depend on your situation. It might not be the best idea to discuss this publicly. If you need assistance, don’t hesitate to contact us.
Hi.
I’m a Peruvian-American citizen living abroad. I have worked as an ESL private teacher in Peru since 2017 and earned less than $10,000 each year. What forms do I need to file with you? Will it be only 1040 forms? Does Peru signed that agreement with US?
Thanks
I meant to write “…did Peru sign…”
Hi Wendy,
Unfortunately, Peru does not have a totalization agreement with the US, hence you will be subject to a self-employment tax of 15.3%. The filing threshold is $400, which means if you had more than $400 of self-employment income, you must file a tax return = form 1040 and other schedules depending on your situation.
Hello,
IF I make 30000 as a contractor with a US company but live in Greece, will I be taxed with the 15.3% on the 30.000? I know that I would also have to pay a remaining tax percent in Greece as I am also a Greek citizen.
Thank you
Hi Margarita! No, the US has signed a totalization agreement with Greece. If you pay income taxes in Greece, you won’t be subject to self-employment tax in the US.
Hi, I’m a freelance English teacher in Morocco, trying to navigate Turbo Tax without declaring my income twice–once under Foreign Earned Income Exclusion and another time as Self-Employed. I made under $17k in 2019–even though self-employed, does this not fall below some bracket for Foreign Earned Income? Or do I still have to pay self-employment taxes? Thank you!
Hi Andrew! Yes, you are still subject to self-employment tax of 15.3% as Morocco has not signed a totalization agreement with the US.
Hi,
I’m a freelancer living and working in Spain, where I pay social security. The IRS website says this: “To establish that your self-employment income is subject only to foreign social security taxes and is exempt from U.S. self-employment tax, request a certificate of coverage from the appropriate agency of the foreign country.”
Would I have to get this document translated to English before sending it to the IRS? Do you know if Spain can provide documents in English?
Hi Zach! Yes, it would include an English translation. With that being said, if you enter a Spanish address on your 1040, the IRS doesn’t typically request the certificate of coverage.
Hello! I have a b&b in Germany. I make around 20-30 k a year but generally only have 10k or so in profit. Do i need to pay SE tax?
Hi Teresa! No, Germany has signed a totalization agreement with the US to avoid double taxation. You won’t be subject to SE tax.
Hi Oliver! I’m an American Citizen and living in Portugal as a bonafide resident. I understand that there is a totalization agreement between the countries so that I don’t have to pay self employment tax in the US since I am enrolled in the Portuguese social security system. Do I need to include any sort of proof or documents along with my tax filing?
Hi Max! No, you don’t any additional documentation to be filed together with your tax return.
Hi Olivier
I live and work in Switzerland as a freelancer. Do I have to file 1040-SE or 1040 as Switzerland has an agreement with the US? I pay income taxes in Switzerland
Hi Florian! You still have to file a US tax return 1040 even if you live in a country that signed a totalization agreement with the US.
Is this the case even if you earn below the earnings threshold for filing? i.e. it is more than the $400 SE threshold but less than $12,500 and you live in a country with a totalization agreement?
Hi Angie! No, if you have self-employment income, your filing threshold is $400.
Greetings I am a US citizen who is a permanent resident of Canada and I started my sole proprietor company in Canada. On the form 8854 it asked for a reference number and I do not have. I was never given one, is that something that I need to get from the US IRS since I have a company or FB foreign branch in Canada?
Hi Stephanie! A reference number is a string of characters (letters or numbers) that you chose the first-time you file form 5471 and that you then use consistently for that corporation, you would then report it on form 8854, but you would have chosen that string of characters the first time you filed a form on which it was requested.
Hey Olivier,
I’m a US citizen living in Israel and recently I started working freelance for an Israeli company. Do I need to pay the self-employment tax in the US, even if I make less than $100k?
Hi Kasha! Yes, you will be subject to the US self-employment tax as there is no totalization agreement between the US and Israel.
Hi. If I have opened an LDA in Mozambique and am a resident. I’m hired through the company that I opened and pay both income tax and social security abroad am I still required to pay the self employment tax?
Hi DP! No, you won’t be subject to the SE tax, but you have to file 5471 to report the company.
Hi Olivier!
I am a dual US & Norwegian citizen. I am self employed and operate my business as a s-corp in the United States. I am moving to Norway this summer and plan to continue working as self-employed. Is it okay to keep my s-corp in the United States or should I move my company to Norway? My clients are all US based. I am very confused on the best way for me to pay taxes in the next phase of my life while living in Norway.
Hi Kristen! If you’re operating as an LLC, which elected to be treated as an S-Corp, the simplest way would be to revoke that election and operate as a single-member LLC (and therefore be a disregarded entity). You wouldn’t be liable for social security in the US and would instead have to pay it in Norway as per the Social Security totalization agreement between the US and Norway. Feel free to use the contact form on this website in order to discuss it further.
Hi Oliver,
I work as a freelancer for US companies and receive payments for my services in US bank but I live and work from Bulgaria for the past year and a half or so. I’m not registered with the Bulgarian IRS. Which country do I pay taxes to, US or Bulgaria? Can I claim Foreign Earned Income on my 1040 and if so do I need to pay income tax in Bulgaria under their law?
Thanks a lot,
Hi Sammy! Yes, you are subject to Bulgarian tax. You can use the FEIE to exclude your foreign earned income.
Hello, I am a US citizen living in Canada on a temporary open work permit (will likely upgrade to permanent residence next year).
I originally came here to study (I completed my program 3 years ago) and then I obtained an open work permit and worked the same job that got me through university until I was able to live full time on self employment income alone (about a year now). I work entirely for myself making art supplies.
I did my Canadian taxes a few months ago and im pretty sure I paid into some kind of social program similar to SS, is there any way for me to avoid paying into American SS now that I am preparing to file my USA taxes?
Thanks
Hi RD!
Canada has signed a totalization agreement with the US which means if you pay into the Canadian SS system, you don’t have pay into the US SS system.
does self-employment or opening a business to become an individual entrepreneur (and becoming a tax resident of my country of residence) exclude me from taxes in the USA? referring to the tax treaty with the USSR.
Hi HJ! A US citizen would always have to file a tax return, and if self-employed would pay self-employment tax (unless there is a totalization agreement with the US, which there isn’t with former USSR countries).
Hi! I am a U.S. Citizen, living and working in Italy (with unlimited VISA) for an Italian company. I worked for this company 2 years now and always paid taxes in Italy.
Every year I still file my U.S. taxes with the FEIE and end up owing 0$ and getting 0$.
Now I found a job as a freelancer with a company in Redmond (WA) and they will give me a 1099-MISC for the money I earn with them.
I still want to keep my job with the Italian company as well though.
When I file taxes next year, do I have to pay SE tax?
If yes, how much will that be in % (roughly)?
And do I have to pay it just on the 1099-MISC income or also on the money that I earn from the Italian company (which I already pay taxes for, here in Italy).
Thank you very much in advance!
Hi Sherif! No, Italy has signed a totalization agreement with the US.
Hi Olivier, I am US and Turkish Citizen and planning to move to Turkey and open an online clothing store (e-commerce) under Sole Prop or LLC. Store will be selling mainly to USA. Should I register the business in USA or Turkey. Which model is best and which is better with the taxes? and If I choose to register my business in USA, do I have to pay taxes to Turkish government since I wont be registering anything in Turkey. Thank you so much!
Hi Mesut! I would use a Turkish corporation in order to avoid US income tax (foreign tax credit, or foreign earned income exclusion) and US self-employment tax. Feel free to use the contact form to schedule a call with me in order to discuss it further.
Hello, I am a US citizen and a permanent German resident.
I am employed fulltime, but operate a consulting business on the side.
Do I pay SE tax on the freelance income?
Do I file this separately on the FEIE?
Thank you.
Hi XZ! Germany has signed a totalization agreement with the US. If you pay SE tax in Germany, you are not liable for the SE tax in the US.
Hi Olivier,
Thank you for the informative post (better than most out there). Regarding section 3 LLCs, since my 100% owned foreign LLC (Taiwan) is considered a foreign corporation by default (I read this elsewhere), I don’t have applicable SE taxes, right? However, it sounds like form 5471 has to be filed under Category 4 for me?
Cheers
Hi HM! Yes, you must file form 5471.
I live and work in France, in two capacities. In the past, all my income has qualified for the FEIE. If I start an entrepreneur status, how will I report both incomes and will I lose the benefit of the FEIE for that portion of the income?
Hi NH! No, you can still use the FEIE.
Hi, not sure if you can help me find answer to my question, but let’s try..
I have dual citizenship American & Polish. I am employed by NY corporation that does business in US only. I am moving to Poland for some time. Can I continue to be employed by my company and work remotely from Europe?
Hi MK! Yes, you can.
Hi Olivier, I’m a US citizen and permanent resident in the UK. I am getting ready to launch my natural skincare brand here in the UK which is an LLC. I am the majority owner and my husband, who is British holds a small percentage in my company. I know I am still subject to income tax but where do I fall in as far a employment tax? Will I have to pay dual taxes in the UK and USA?
Hi Mimi! Most likely you won’t be subject to US tax, but you must file. UK LLC will trigger an additional filing requirement of a complicated form 5471. We charge $500 for the form alone.
Hello, I am a partner in a small business in Israel. My partner and I are both US citizens. I receive a paycheck and pay all Israeli taxes and social security. Do I need to also pay social security in America on my earned income? what about any profit that is taken from the business?
Thank you
Hi Joshua! No, employees of a foreign employer, working outside the US, are not subject to US social security.
Greetings Olivier!
I am from US but live in Ukraine and work for a Swiss online English company. It’s my first year filing like this. We are classified as consultants for the European company, so it appears I would be subject to the self-employment tax. I do have an LLC in the US that I started, but it’s not actively earning income yet. I’ll make about $14,000 this year so apparently need to pay 15.3% on these wages but unsure. Also have Estonia e-residency card so thought about setting up an online teaching/consulting company through that so I can start my own focused teaching company. It’s incredibly confusing and I just learned here that what I thought was mistaken. I was of the understanding I could make up to $12,500 and not be concerned about even filing, and then the Foreign Income Exclusion would cover me until I got to $107,600 but apparently it doesn’t cover freelancers who make over $400. Ugh. Maybe I should call and talk to someone to prepare for my new life abroad and get strategy on how to move forward? Thanks
Hi Aaron! Yes, I would recommend speaking to a tax professional. You will be subject to the self-employment tax and your filing threshold is $400. Setting up a foreign corporation would eliminate the self-employment tax but it would trigger additional filing requirement of a complicated form 5471. We charge $500 for the form alone.
Hello! If i teach private english lessons in Japan , but am covered as a dependent by my japanese husband’s work social security equivalent…thus not having to contribute from my income, (if i made more than 10k i would have to become independent and pay SS contributions in japan). Would i still be able to claim the totalization agreement and not pay US SE tax?
Hi M! Yes, you are able to claim the totalization agreement.
Hi Aaron,
I’m a US citizen and New Zealand Permanent Resident. I am planning on shifting to be self employed as a sole trader/sole proprietor. I will be registered in New Zealand, but do I also need to do something to register my sole proprietorship in the US? Or can I just use my SSN and file a schedule C?
Hi Christine,
You do not need to register yourself as a self-employed person in the US. You would indeed file schedule C and use your SSN.
I have to warn you, however, that the US does not have a Social Security totalization agreement with the US. As such, you would (in addition to any NZ obligation) also be liable to pay US Social Security (called self-employment tax) at a rate of 15.3%.
An alternative is to create an NZ corporation. You can then pay yourself wages so as to offset the net income of the corporation (and avoid Subpart F and GILTI income issues). You would however have to file form 5471.
Warm regards,
Olivier
I am a dual citizen of the US and Canada. I have lived in Canada for the last 10 years and don’t plan to leave. I am an actor and report my income in Canada as self employment income. I pay federal, provincial and Canada Pension Plan (similar to self employment tax in the US). When I file my US tax return I show my address in Canada and do not include a form S.E. . I show no Self employment tax due on my US tax return even though I do show a schedule “C”. Should I attach a copy of my Canadian tax return to prove to the IRS that I calculated and paid taxes in Canada ? Thank you.
Hi Harry,
Attaching your Canadian tax return to your US tax return is not necessary. The IRS knows there is a totalization agreement between the US and Canada. Unless you receive a notice requesting a copy of your Canadian tax return, you don’t need to provide it.
All the best,
Kasia
Hello,
I am a US citizen living in India and also holding an OCI (Overseas Citizenship of India). I want to freelance and work for a US corporation/business, get paid in USD into my US bank account but be able to work majority of time from India (say 8-9 months a year from India). What is the best way to achieve such an arrangement? By being an independent contractor? or sole proprietorship in a LLC? What would be my tax implications for the US and India?
Thanks!
Hi Nitin,
If self-employed or using a single-member LLC as a disregarded entity, you would simply report it on Schedule C, and you would pay US social security (called self-employment tax) at a rate of 15.3%.
Alternatively, you can create an Indian corporation, you would file form 5471. There are advanced tax issues (Subpart F income & GILTI income) but you can avoid those by paying yourself wages so as to offset net income of the corporation and bring it down to zero.
I can’t comment on the impact on Indian tax obligations.
Hi there! This article was a lot of help. I am a US citizen living in France and do completely freelance work. I moved to Spain last year and even though I was being paid by the Spanish government for my job the US still took their share from this. My question is if I should dispute that from last year? And if I haven’t resided in the US since September 2019 am I required to file taxes even if I don’t live and work there?
Thanks!
Hi Holly,
If you qualify for the foreign earned income exclusion or can claim the foreign tax credit, you can amend the tax return to receive a refund of the taxes paid.
Warm regards,
Kasia
Hi Olivier I am a US and german citizen living in Germany …I am paying into a private social security fund in Germany. Do I still have to pay social Security in the US? in other words does it have to be the government social security if I want to avoid paying US social security?
Hi Ralf,
The US has signed a totalization agreement with Germany, hence you will not be subject to self-employment tax pay US social security.
All the best,
Kasia
Hi Olivier,
I am a US citizen living in Vietnam. I’m investing to a restaurant in Vietnam with my friend. Profit ~120k USD per year. How can i send that money legally into US? Thank you.
You can simply perform an international wire transfer. If you are incorporated, the question is: did you file forms 5471, and did you pay the appropriate tax?
Hi Oliver,
I’m going to be a US citizen living in Russia. I’ll have self-employment income ~$5.000, but main source of income will be working as an employee for big company in Russia. Do I have to pay Self employment tax from $5.000 only or from total income? Will I earn US Social Security credits if I pay social security tax? Thank you
Yes, you would pay self-employment tax at a rate of 15.3% on those $5,000 of self-employment income ($765).
Yes, you will get social security credits for that.
Hello,
I am a US citizen, and I was recently offered an opportunity to work in Brussels for a Belgian organization. My status would be as an independent professional. I am applying for a professional card ( work permit ) and temporary visa to temporarily work and reside in Belgium for up to two years. While I’m waiting for these, I will be working remotely from the US and from another country in the EU where I plan to stay with friends as a tourist. This could take 2-3 months before I am permitted to work and live in Brussels. My question is – while I work remotely , am I expected to pay taxes to the Belgian government and / or pay into their healthcare system? What about after I begin in person with my work visa and I actually reside there ( temporarily). I have not gotten clear answers from my employer or or the Belgian consulate, other than as an independent professional , I will be responsible for all my own taxes. Thanks!!
Hi Linda,
This is a Belgium tax question. We can’t advise on Belgium tax.
All the best,
Olivier
Hello!
I am a US citizen living in France with residence status, and working remotely as a contract worker for a company in the US. I have a few questions:
When filling my self employment tax, can I claim business expenses for my home office even if my office is outside of the US?
Under the TCJA tax reform bill you can deduct 20% of your qualified business income if your business is not conducted outside of the US or Puerto Rico. Would my business be considered “conducted outside of the US?” I ONLY do work for a US company, but I physically reside outside of the US.
If I am only working for a US company, getting paid in USD into a US bank account, but residing in France, I know I need to file taxes in both countries (I have resident status in France), but since I am not earning “foreign income”, will I still be able to avoid double taxation with the totalization agreement?
Your help is much appreciated!
Hello!
Yes, you can claim a business expense for your home office, even though it’s located in France.
You don’t qualify for the section 199A dedication (from the TCJA tax reform).
Yes, you will definitely be able to avoid double taxation. You would pay income tax to France, and then claim a foreign tax credit in the US.
I’m not entirely sure of your situation. I understand that you are self-employed (you wouldn’t be able to deduct the home office expense if you were an employee).
I’ll refer you to the totalization agreement: https://www.ssa.gov/international/Agreement_Pamphlets/france.html
If you “Normally work in the U.S. but transfer your business activity to France for two years or less”, you would pay social security to the US.
If you “Work only in France”, you would pay social security to France.
You are earning foreign income: personal services are sourced where the work was performed, i.e, where you were physically located when you perform the work.
Hello Oliver and team
I reside in Poland since 2018. I am currently working as a self-employed contactor for a company in the USA. They issued a 1099-MISC. The 1099-MISC i receievd and other 1099-DIV from my brokerage accounts i the USA have my forwarding address in the USA (Friends house in Texas where we used to reside) and not my Polish residence address where i phisically live and work work. A few questions come to mind:
1. Will the IRS raise any issues because my 1099 forms have a US address, but the 1040 has my Polish address?
2. I am assuming that the income in the 1099-MISC will still be considered foreign sourced as all the work was done in Poland? Can i still use the FEIE?
3. I have not paid any US self-employment taxes in advance. Will attaching the certificate of coverage and stating that i am exempt due to the totalization agreement be satisfactory to the IRS?
I have read your book and it was extremly helpful. I have to say that i apprecaite the approach that you guys take, which is to help expats without scare tactics which i see in many other places. I will be reaching out to you guys for a consultation.
Appraciate all your help. Doing taxes as an Expat is stressful and in my case I lived for a long time in the USA and still have lots of financial interest there so i need to make sure i am compliant.
Thanks once again
Hi Jose,
1. I don’t foresee any issues in this regard.
2. Yes, you can use the FEIE or FTC if you paid tax on your income in Poland.
3. Yes.
Thank you so much for your kind words. Hope these answers help! Have a great weekend.
Kasia
Kasia thank you so much for your reply.
Hi Kasia,
One more question, in order to pay taxes in Poalnd i had to register as self-employed (sole proprietorship). Do i need to file any of teh additional forms: 8832, 8854 , or 5471?
Hi Jose,
You would report your self-employment income on Schedule C.
All the best,
Kasia
Hi Kasia,
Thank you, by any chance do you guys collaborate with other accounting firms abroad. Specifically Poland, Katowice area.
Hi Jose,
No, we don’t collaborate with other accounting firms.
Hello Team!
This might be a more complicated question:
I am a double citizen of the US and another EU state that has a treaty with the US. I also reside there (in the EU country).
I would like to sell KDP on Amazon. Can I do that as a US citizen and declare my income from this activity and pay only US taxes as a sef-employed/sole entrepreneur?
Thank you for your help!
Hi Sylvia,
You would most likely pay tax in Europe and then claim a foreign tax credit in the US.
All the best,
Olivier
I am a US citizen living in Chile. I am a freelancer and I received income from a 1099-NEC. My question is, when I fill out Schedule C, it does not let me put my foreign address as the business address. What can I do?
Hi Mary,
I know that many tax softwares do not support forms commonly used by US expats. You should contact customer support. You might need to upgrade your software.
Warm regards,
Kasia
Hi! I am a US citizen living in Ireland. I choose Ireland as my tax residence every year.
I was recently offered an opportunity to work as an independent contractor in the US. I want to choose US as my tax residence and list my primary offices there as a sole proprietor. Do I need to be in the US before the start of the contract date to establish physical presence – or can I arrive later (i.e. am hoping to relocate 1-3 months into contract, only if possible).
Hi Anne,
As a US citizen you are (and have been) a US tax resident, meaning that you have to report your worldwide income to the US (but you can then offset any tax liability using the FEIE or foreign tax credit). If the work is performed outside the US, these mechanisms would still be available even if your client is in the US.
All the best,
Olivier
Hi, do self employed US citizens as sole trader / freelancer individuals, who work and reside in foreign countries and file Schedule C and form 2555 to exclude all of the foreign earned income, also need to file form 8858? Even if there is no separate bank account for the business (same account for both private and business)? -Thanks
Hello again,
A foreign disregarded entity would have to exist in order to have a form 8858 filing requirement. If they truly simply work under their own name, a form 8858 filing requirement wouldn’t exist.
Best,
Olivier