Do US dual nationals in Qatar pay US tax on self-employment income?
Yes. Any money earned in Qatar through self-employment, independent contracting, or the gig economy will be subject to US self-employment tax.
Why is my self-employment income in Qatar taxed by the US?
Self-employment income earned in Qatar is subject to US self-employment tax due to the absence of a totalization agreement between Qatar and the U.S. This means that while you’re not paying into Qatar’s social security system, you’re still obligated to contribute to the US Social Security and Medicare systems.
Can I use the Foreign Earned Income Exclusion for self-employment income?
Yes. The first US$120,000 of self-employment income can be excluded from US income tax assuming you meet the eligibility criteria for the Foreign Earned Income Exclusion (FEIE Form 2555).
The FEIE only excludes income tax, it does not remove self-employment tax.
Even if all of your self-employment income is excluded by the Foreign Earned Income Exclusion, you’ll still have to pay self-employment tax to the IRS.
How much self-employment tax do I have to pay to the IRS?
The self-employment tax rate for the IRS is 15.3%, which comprises 12.4% for Social Security and 2.9% for Medicare. This tax applies to your net earnings from self-employment, which is your self-employment income after deducting allowable business expenses. For US citizens and residents, including dual nationals living in Qatar, this means that if your net self-employment income exceeds $400, you are required to pay this tax. This tax is due even if your income is excluded from U.S. income tax under the Foreign Earned Income Exclusion.
How do I report self-employment income to the IRS?
US citizenship holders living and working in Qatar must report self-employment income to the IRS. This includes all revenue received from self-employment activities, minus any allowable business expenses, resulting in either a net income or a net loss. This income must be declared on Schedule C and Form 8858 of the US tax return.
Can self-employment taxes in Qatar lead to US social security benefits?
Absolutely. Paying self-employment taxes to the US from Qatar can count towards your eligibility for future US Social Security benefits. Additionally, consistent contributions ensure you meet the minimum threshold required to qualify for Social Security payments upon retirement.
Is there a way to avoid paying self-employment tax to the US?
One strategy to potentially avoid self-employment taxes is to establish a foreign corporation in Qatar, through which you can draw a salary. It also means that this salary may qualify for the Foreign Earned Income Exclusion, thus exempting it from US self-employment taxes.
However! This approach introduces additional filing requirements, including the need to report your foreign corporation to the IRS, which can be complex and necessitates careful planning.
What should I do before becoming self-employed or opening a company in Qatar?
Before taking any steps towards self-employment or establishing a company in Qatar, it’s important to consult with a US tax advisor. They can provide tailored advice based on your specific situation, helping you understand your US tax obligations, while and maximize your financial strategy in Qatar.
