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Connect on LinkedInSelf-employment tax is the U.S. Social Security and Medicare tax on net earnings from self-employment. For U.S. expats, it can apply to freelance, consulting, contractor, creator, professional services, sole proprietor, and business income earned while living abroad.
Why it matters for U.S. expats
Self-employment tax is one of the most common surprises for Americans working abroad because the Foreign Earned Income Exclusion can reduce regular income tax but does not reduce self-employment tax. A freelancer who owes no U.S. income tax after Form 2555 may still owe Social Security and Medicare tax on net self-employment earnings, unless a totalization agreement or another exception changes the result.
Common questions
1. Who pays self-employment tax abroad?
Self-employed U.S. citizens and resident aliens abroad pay self-employment tax when their net earnings from self-employment are at least $400, unless an exception applies.
2. What income is subject to self-employment tax?
Self-employment tax applies to net earnings from a trade or business, including freelance income, consulting fees, contractor income, sole proprietor profit, partner income, and some royalty or creator income.
3. What is the self-employment tax rate?
The self-employment tax rate is 15.3%, made up of 12.4% Social Security tax and 2.9% Medicare tax. Additional Medicare Tax can apply above certain income thresholds.
4. Is all self-employment income subject to Social Security tax?
No. The Social Security portion applies only up to the annual Social Security wage base. The Medicare portion applies to all net earnings from self-employment.
5. Does the Foreign Earned Income Exclusion reduce self-employment tax?
No. Self-employed expats must include all net self-employment income when calculating self-employment tax, even if some or all of that income is excluded from income tax under the Foreign Earned Income Exclusion.
6. Does the Foreign Tax Credit reduce self-employment tax?
No. The Foreign Tax Credit reduces eligible income tax. It does not reduce U.S. self-employment tax.
7. Can a totalization agreement remove U.S. self-employment tax?
Yes, when the agreement assigns Social Security coverage to the foreign country instead of the United States. The taxpayer usually needs a certificate of coverage or equivalent statement to support the exemption.
8. What is a certificate of coverage?
A certificate of coverage is proof that a worker is covered by one country’s Social Security system under a totalization agreement. For self-employed expats, it can show whether U.S. self-employment tax or foreign social security tax applies.
9. What form is used to calculate self-employment tax?
Schedule SE is used to calculate self-employment tax and is attached to Form 1040.
10. Is Schedule C the same as Schedule SE?
No. Schedule C reports business income and expenses. Schedule SE calculates the Social Security and Medicare tax owed on net self-employment earnings.
11. Can self-employed expats deduct business expenses?
Yes. Ordinary and necessary business expenses can reduce net profit on Schedule C, which can also reduce the amount subject to self-employment tax.
12. Can self-employed expats deduct half of self-employment tax?
Yes. Taxpayers can deduct one-half of self-employment tax as an adjustment to income when calculating adjusted gross income.
13. Do self-employed expats need estimated tax payments?
Yes, if they expect to owe enough tax and do not have withholding to cover it. Estimated payments may need to cover income tax, self-employment tax, and Additional Medicare Tax.
14. Does foreign social security tax count as self-employment tax?
No. Foreign social security contributions are separate from U.S. self-employment tax. A totalization agreement may determine which country has the right to collect social security tax for the work.
15. Do nonresident aliens pay U.S. self-employment tax?
Nonresident aliens are not subject to U.S. self-employment tax unless a special rule applies. Self-employment income received while the person is a U.S. resident can be subject to self-employment tax, even if the services were performed earlier while they were a nonresident.
16. What records should self-employed expats keep?
Keep invoices, contracts, receipts, bank statements, payment processor reports, mileage or travel records, home office records, foreign tax filings, social security contribution records, certificate of coverage documents, and exchange-rate calculations.
Related forms
- Schedule SE: Self-Employment Tax
- Schedule C: Profit or Loss From Business
- Form 1040: U.S. Individual Income Tax Return
- Form 1040-ES: Estimated Tax for Individuals
- Form 2555: Foreign Earned Income Exclusion
- Form 8959: Additional Medicare Tax
When to get help
Professional guidance is important when:
- You freelance, consult, or run a business while living abroad.
- You claimed the Foreign Earned Income Exclusion and still need to calculate self-employment tax.
- You pay foreign social security contributions.
- You live in a country with a totalization agreement.
- You need a certificate of coverage.
- You have both employment income and self-employment income.
- You need to make estimated tax payments from abroad.
- You are unsure whether income belongs on Schedule C, Schedule SE, Form 2555, or Form 1116.
Bright!Tax can calculate self-employment tax, review totalization agreement coverage, prepare Schedule C and Schedule SE, and coordinate self-employment income with expat tax benefits. Get started with Bright!Tax.
Related Bright!Tax guides
- Schedule SE: Self-employment tax for U.S. expats
- Self-employment taxes for Americans abroad
- Totalization agreements for U.S. expats
Official sources
- IRS: Self-employment tax for businesses abroad
- IRS: Topic no. 554, Self-employment tax
- IRS: Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
- IRS: About Schedule SE
- SSA: U.S. international Social Security agreements
Reviewed by
Katelynn Minott, CPA & CEO
Last reviewed
July 2026