Pay Self-Employment Tax
Updated on April 15, 2025
Reviewed By
Aya Takriti, an IRS Enrolled Agent with 11 years of expat tax experience, specializes in US tax preparation, tax planning and tax advice for US citizens and Green Card holders living and working in the Middle East. *Schedule a consultation with Aya today.
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Table of Contents
Do Americans abroad have to pay US self-employment tax?
If you’re residing in a country that has a totalization agreement with the US, then it’s unlikely you’ll need to pay self-employment tax back home.
But, if your host country does not have a totalization agreement with the US, you are required to pay self-employment tax to the Internal Revenue Service (IRS).
For the 2025 tax year, you will be required to report and pay self-employment tax if your earnings reach US$400 and above, including your foreign self-employment income.
What is self-employment tax?
Self-employment tax is basically the tax levied on self-employed individuals or small business owners in order to fund their Social Security and Medicare.
The tax rate is composed of 2 categories: Social Security and Medicare. For 2025, US citizens will be taxed at 12.4% for Social Security up to a certain threshold and 2.9% for Medicare, totaling a 15.3% overall self-employment tax rate.
This means that when you’re a self-employed US expat, you are also your own employer, so you have to pay both your part and the employer’s part of these taxes; that’s why the rate is higher.
What is a totalization agreement?
A totalization agreement is a tax treaty between the US and another country that helps prevent double taxation of Social Security taxes. They coordinate social security coverage and taxation between the US and partner countries.
This eliminates the responsibility of US expats to pay self-employment tax in the US. Without this, they may have to pay US self-employment tax and foreign social security tax.
You can get a Certificate of Coverage from your local Social Security office and attach it to your US tax return to show you’re exempt from US Self-employment tax.
Currently, the US has treaties with 30 countries, including the UK, Canada, and Australia. You can check if
Which countries have a totalization agreement with the US?
Below are the 30 countries that have a totalization agreement with the US:
- Australia
- Austria
- Belgium
- Brazil
- Canada
- Chile
- Czech Republic
- Denmark
- Finland
- France
- Germany
- Greece
- Hungary
- Iceland
- Ireland
- Italy
- Japan
- Luxembourg
- Netherlands
- Norway
- Poland
- Portugal
- Slovak Republic
- Slovenia
- South Korea
- Spain
- Sweden
- Switzerland
- United Kingdom
- Uruguay
Italy has special rules when it comes to paying social security taxes. The US-Italy agreement allows dual contributions in specific situations, especially for self-employed individuals.
For example, if you have a business in Italy and maintain business ties in the US, you might still be subject to US self-employment tax despite the agreement, depending on how and where the income is earned.
Need help paying self-employment tax? Contact us today.
What is the threshold for paying self-employment tax?
For the 2024 tax year, Social Security tax only applies to the first US$168,600 of self-employment income earned, which is assessed at a rate of 12.4%.
On the other hand, Medicare tax has no income limit, but you can be subject to an additional 0.9% Medicare tax if your earned income exceeds a certain threshold based on your filing status.
|
Filing status |
Threshold amount |
|
Single filer |
US$200,000 |
|
Married filing jointly |
US$250,000 |
|
Married filing separately |
US$125,000 |
|
Head of Household |
US$200,000 |
What if I qualify for the Foreign Earned Income Exclusion (FEIE)?
Qualifying for the FEIE doesn’t exempt you from self-employment tax. So, even if you don’t have to pay income tax on your foreign earnings because of the FEIE, you still have to pay self-employment tax on the money you actually made or your net profit.
It also does not lower your self-employment tax bill. For example, A Green Card holder earns US$95,000 from self-employment and incurs business expenses of US$20,000. That leaves us with a US$75,000 net profit.
The IRS lets you exclude up to US$120,000 of foreign income from income tax. So the US$75,000 is tax-free for income tax but the IRS still charges it for 15.3% self-employment tax.
What is the difference between income tax and self-employment tax?
Income tax is for everyone who earns income, while self-employment tax is a separate tax that covers Social Security and Medicare. So, you can be subject to both income tax and self-employment tax.
The Foreign Earned Income Exclusion doesn’t impact self-employment taxes for US expats. If you want to lower your self-employment tax, you can do so by claiming qualified business expenses and taking a look at the totalization agreement between the US and your host country.
Is there anything else I can do to minimize self-employment taxes?
Yes, there are more strategies for US expats to reduce their self-employment tax liability, such as setting up a foreign corporation. Some individuals create a business entity abroad and pay themselves a salary. However, this route has strict rules and constitutes more responsibility and extra forms to file.
Additionally, you can seek professional tax planning help to maximize all possible business expenses and lower your tax bill.
How do I report my foreign self-employment income to the IRS?
Here are the steps and forms required to report foreign self-employment income to the IRS:
- Gather required forms: You’ll need to complete Form 1040 along with business deduction forms. You will also need Schedule C for your profit or loss and Schedule SE to calculate your self-employment tax.
- Calculate your net profit or loss: You will input this on Schedule C.
- Calculate your self-employment tax: You can use Schedule SE for this.
- Report Foreign Accounts (if required): You must file FBAR and/or attach Form 8938 to your tax return.
- File Form 1040: File your federal tax return along with your attached schedules on April 15 or June 15 (automatic extension).
How do I make quarterly tax payments?
First, you’ll need to estimate the taxes you pay by making quarterly estimated tax payments. You can use Form 1040-ES or Estimated Tax for Individuals. This will help you stay on track during the year so you don’t get hit with penalties later.
If you’ve been self-employed before, you can estimate using last year’s tax return as a guide. If it’s your first year, estimate how much money you’ll make and use that to figure your taxes.
For possible income changes, you can recalculate and fill out a new 1040-ES worksheet before the next quarter. But if you wait until tax season to pay everything at once, you could face penalties for paying late.
