The self-employment tax is a social security and Medicare tax which must be paid if your net earnings from self-employment are at least $400 for the tax year. For 2017, the maximum amount of your net earnings from self-employment that are subject to the social security portion of the tax is $127,200. All of your net earnings are subject to the Medicare portion of the tax. As you may know, if you are a self-employed citizen or resident, the rules for paying self-employment tax are generally the same whether you are living in the United States or abroad.
Nonresident Aliens. Nonresident aliens are not subject to self-employment tax. However, self-employment income you receive while you are a resident alien is subject to self-employment tax even if it was paid for services you performed as a nonresident alien.
Effect of Foreign Earned Income Exclusion. You must take all of your self-employment income into account in computing your net earnings from self-employment, even income that is exempt from income tax because of the foreign earned income exclusion.
Income from U.S. Possessions. If you are a U.S. citizen or resident alien and you own and operate a business in Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, or the U.S. Virgin Islands, you must pay tax on your net earnings from self-employment (if they are $400 or more) from those sources. You must pay the self-employment tax whether or not the income is exempt from U.S. income taxes (or whether or not you must otherwise file a U.S. income tax return).
Services for Foreign Government or International Organizations. For U.S. citizens, the income paid for services rendered to a foreign government or international organization is reportable as self-employment income on their U.S. federal income tax returns, and is subject to self-employment tax to the extent such services are performed within the United States.
International Social Security Agreements. The United States has entered into social security agreements with foreign countries to coordinate social security coverage and taxation of workers employed for part or all of their working careers in one of the countries. These agreements are commonly referred to as “totalization agreements.” Under these agreements, dual coverage and dual contributions (taxes) for the same work are eliminated. The agreements generally make sure that social security taxes (including self-employment tax) are paid only to one country.
Your foreign-earned self-employment income should be reviewed to ensure compliance with these tax provisions. Please call our office at your earliest convenience to arrange an appointment.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, information contained in this article is not intended by TOPC Potentia P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.