Does being self-employed change US expat tax obligations?

US expats are often confused by the impact of self employment on their US tax obligations. This video blog will explain how self employment taxes are applied in relation to the Foreign Earned Income Exclusion.


D. McKeegan: Hi everybody. I’m David McKeegan from Greenback Expat Tax Services and we have a new question in this week. Does being self-employed change my US expat tax obligation? In short, the answer is yes. If you’re self-employed and you earn over $400 on self-employment income over the course of the year, you have to file a US tax return. Now because you’re self-employed, you’ll be required to pay both the employee and the employer portions of self-employment. Self-employment is basically your Social Security and your Medicare tax.

For the 2012 tax year, this was a total of 13.3% on the first $110,100 and the way that is broken out is 10.4% for Social Security and 2.9% for Medicare. The Social Security is only on the first $110,100, but the Medicare is on your full earnings. This increased for 2013 because the payroll tax holiday ended. For 2013, it is going to be 15.3% on the first $113,700 that you earn and that’s broken out was 12.4% for the Social Security and 2.9% for Medicare. Again, the Social Security is only on the first $113,700 you earn, but the Medicare is on your full earnings.

The most important thing for expats to know and to understand is that this gets paid out before the foreign tax credit or the foreign earned income exclusion. If you’re counting on having foreign earned income exclusion exclude this money from taxation, that’s not going to happen because you have to pay the self-employment tax before you can apply the foreign earned income exclusion. So if you’re working overseas, you’re self-employed, and you’re counting on the foreign earned income exclusion, please make sure that you save up a little bit of money to pay your self-employment taxes as well. Thank you.

Need Help With US Expat Taxes?

We have a blog post on tax tips for self-employed US expats that you might find helpful. If you have questions about your US expat taxes, or if you would like to learn about our expat tax services, please contact us.