US taxes while living abroad
Do self-employed Americans abroad still pay US self-employment tax?
Last reviewed .
Often yes. Publication 54 states that the foreign earned income exclusion does not reduce self-employment earnings for self-employment tax, so you can owe US Social Security and Medicare tax even with no US income tax. A totalization agreement between the US and your country may assign coverage to one system, usually shown with a certificate of coverage. A licensed tax professional should apply these rules to your own facts.
Key facts
| Fact | What the source says | Source |
|---|---|---|
| Exclusion and SE tax | The exclusion does not reduce self-employment tax | Official source |
| Totalization agreements | Prevent double social security taxation between the US and partner countries | Official source |
| Proof of coverage | A certificate of coverage from the relevant social security agency | Official source |
| Income tax treaty | A separate agreement from a social security agreement | Official source |
Why can you owe self-employment tax with zero income tax?
US income tax and US self-employment tax are calculated separately. The foreign earned income exclusion only affects income tax. Publication 54 states that it does not remove self-employment earnings from the self-employment tax calculation. A freelancer who excludes all income can still owe self-employment tax on net earnings.
What is a totalization agreement?
The US has social security agreements, often called totalization agreements, with a number of countries. The IRS explains that these agreements prevent double taxation of social security taxes and must be considered when deciding whether someone owes US Social Security and Medicare tax. They work in both directions and can also decide whether you owe the other country's contributions.
The rules for self-employed people differ by agreement. Many assign coverage by where you live, but each agreement has its own wording. Read the agreement for your country through the Social Security Administration.
How do you show which country covers you?
A certificate of coverage shows that you are covered by one country's system. The IRS states that the certificate comes from the social security agency of the country whose system covers you. The Social Security Administration explains how to request a US certificate.
Checklist before you start
- Record where you lived and worked during the year.
- Gather your business income and expense records.
- Find whether the US has a social security agreement with your country.
- Collect any certificate of coverage you already hold.
- Bring statements of foreign social contributions paid.
- Note whether you are an employee, self-employed, or both.
Common questions
Does the foreign earned income exclusion cover self-employment tax?
No. Publication 54 states that the exclusion does not reduce self-employment tax.
Which countries have a totalization agreement with the US?
The Social Security Administration publishes the list of countries with agreements and the text of each agreement.
Who issues a certificate of coverage?
The social security agency of the country whose system covers you. For US coverage, that is the Social Security Administration.
Official sources
- Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad. IRS.
- Totalization agreements. IRS.
- International programs and agreements. Social Security Administration.
Sources checked . Official pages change. Use the source over this summary if they differ.
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General information from IRS and FinCEN publications, not tax advice. Rules depend on your facts and the tax year. Confirm with a licensed tax professional before you file. US Expat Desk is a private company. We are not affiliated with the US government, the State Department, or the FBI.