Self Employment and Social Security Taxes – What US Expats Must Know
All American citizens (and green card holders), including expats, are required to file US taxes every year, reporting their worldwide income.
To ensure that expats don’t pay taxes twice on the same income, the IRS has provided several exemptions that expats can claim when they file. Which exemption is most beneficial to claim depends on the expats circumstances, but most expats either claim the Foreign Earned Income Exclusion …
So US expats are subject to US taxation on their worldwide income unless and until they claim one or more IRS exemptions when they file their US tax return.
Expats often have additional US filing requirements too, such as reporting any foreign bank and investment accounts they may have by filing an FBAR (Foreign Bank Account Report.
What about self-employment and social security taxes?
“Both in the U.S. and abroad, SESS tax is a 15.3% “combined tax” consisting of a 12.4% social security tax and 2.9% Medicare tax on a self-employed taxpayer’s entire net earnings.” – wsj.com
Expats working for a US employer who don’t live in one of these 26 countries though may be required to pay both.
Self-employed expats meanwhile are required to pay the Self Employment Social Security tax, which amounts to the equivalent of both employers and employees taxes, a total of 15.3%. So while self-employed expats can still claim IRS exemptions when they file to reduce or eliminate US income tax on their worldwide income, they still face a 15.3% US social security tax.
Catching up with US tax filing
US expats who haven’t been filing US taxes because they weren’t aware of the requirement to can catch up without facing any fines under an IRS amnesty program called the Streamlined Procedure. Under the program, expats can still claim IRS income tax exemptions in retrospect.