U.S. Social Security, Medicare, and Self-Employment Taxes for Expats

By | April 24, 2014

What do American Expats needs to know about U.S. Social Security, Medicare, and Self-Employment Taxes while they are living abroad?

The way Americans living abroad must pay these taxes depends on their employment situation

  • If you are working as an expat of a U.S. corporation, that employer will normally withhold Social Security and Medicare taxes on your W-2 earnings. In certain counties with which the U.S. has established a Social Security Totalization Treaty, American expats can participate in that country’s social insurance system, and not have U.S. Social Security and Medicare taxes withheld from your paycheck.
  • If you work for a foreign employer under the laws of a foreign jurisdiction, you are not required to pay U.S. Social Security tax.U.S. Social Security, Medicare, and Self-Employment Taxes. There may be benefits under the foreign tax credit that can help alleviate the tax burden that you face.


Self-Employment Tax for American Expats

If you are self-employed, (an independent contractor who would normally receive a 1099) you are obligated to pay, in addition to your income tax, a U.S. Self-Employment tax that is both employer and employee’s share of Social Security and Medicare taxes. This is the law no matter if you are working abroad or working in the United States. It is best to check with IRS guidelines to determine if you are self-employed while living as an expat.

When you file your annual tax return, you must file a Schedule C (which can also be used to deduct business expenses) and pay U.S. Self-Employment Tax on your net earnings by filing a Schedule S-E. Currently, the Self-Employment Tax rate is 15.3% of net Schedule C income (expense deductions) before any foreign income exclusion and the taxable net self-employment rate is not reduced by the previously mentioned foreign tax credits. Net earnings are income after expenses are deducted and include the income earned both in a foreign country and in the United States.


Other Self-Employment Issues for American Expats

An American Expat that is self-employed should also consider investigating the local country filing requirements are significant tax might be owed to the local jurisdiction or where the income is earned. You’re likely required to pay estimated taxes every quarter if you’re self-employed. Estimated tax may be used as reference for paying your self-employment tax.