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How to File Taxes as a Self-Employed American Expat

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How to File Taxes as a Self-Employed American Expat

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Self-employment implies that you work for yourself, but there are a variety of methods to achieve this status, such as an independent contractor or as an entrepreneur who owns and operates a small firm.

Specifically, for the purposes of expat tax guidance, self-employment income covers any compensation you receive for part-time or full-time work that you perform either inside or outside your home. Even if you are employed by a corporation as a W2 employee, you may be able to collect self-employment income.

This includes self-employed Americans living overseas who have the same yearly US filing and reporting duties as Americans living in the United States, as well as Americans who work for other companies in the United States. In most cases, if you are a self-employed citizen or resident of the United States, the requirements for paying self-employment tax remain the same whether you live in the United States or elsewhere in the world.

Essentially, the self-employment tax is a social security and Medicare tax levied against the net earnings of self-employment. If your net profits from self-employment total at least $400, you must pay self-employment tax on those earnings.

If you need more information about filing taxes as a self-employed American expat, continue reading this “Taxes 101 for Self Employed US Citizens!” and take advantage of the self employed tax tips we offer.

Full Time Job and Self Employed Tax

People from the United States who work abroad as contractors for a US company will be subject to the entire 15.3 percent self-employment tax rate, whereas those who work directly for the corporation will only be subject to the 7.1 percent social security and Medicare tax. As a result, being an employee of a US corporation might occasionally be advantageous for contractors.

Do you use a regular international mailing address?

You are not required to provide a U.S. address on your expat tax return and can use a foreign address instead. However, you might want to do so in certain cases. For example:

  • You reside in a country with unreliable post service
  • You received income sourcing from a U.S. state that levy state tax unless you provide an alternative U.S. address.
  • You need to show a U.S. state address and file a state tax return to apply for financial aid in a U.S. state college.

Are there differences in the tax forms?

The most significant distinction between being self-employed and being a W2 employee is the manner in which you submit your taxes. In contrast to a W2 employee, you are solely responsible for withholding taxes from your salary - they will not be automatically deducted from your pay prior to your next paycheck. In most cases, you will be required to pay self-employment tax, which includes Social Security and Medicare taxes, in addition to regular income taxes.

You'll want to utilize Schedule SE, Self-Employment Tax, to figure out how much tax you owe. You'll be required to make estimated tax payments, which means you'll be responsible for paying taxes on income that isn't withheld from your paycheck. Making anticipated payments can help you avoid having to pay a penalty when you file your taxes, because the IRS can penalize you if you do not pay enough taxes during the year.

What is the threshold for self employed tax?

For expats who are self-employed, the criteria for triggering a filing need are set at a different level. If you make more than $400 in a calendar year, you will be obliged to file a tax return with the government. The rate of self-employment taxes is 15.3 percent in the United States. Social Security accounts for 12.4 percent of the total, with Medicare accounting for 2.9 percent. Furthermore, if you earn more than $250,000 per year, you may be subject to additional Medicare taxes; the threshold is $250,000 for married couples filing jointly and $200,000 for single filers. Unlike Medicare tax, which has no upper limit, Social Security tax will be levied on only the first $128,400 of your gross income after that.

Here’s a pro tip: Determine whether you need to make projected payments in order to avoid incurring an underpayment penalty on the self-employment tax on foreign earned income at the end of the year.

When do I file self employment taxes?

If you are a citizen or resident alien of the United States who is residing overseas, or if you are a member of the military serving outside the United States on the regular due date of your return, you are automatically granted a 2-month extension to file your return without having to seek one. The default 2-month extension for a calendar year return is until June 15, if you file by April 15. It is important to remember that you must pay any taxes owed before April 15 or interest will be imposed beginning on April 15.

Do expats pay Medicare tax?

Because you're your own boss, you'll have to pay the Social Security and Medicare taxes that your employer would normally deduct from your paycheck. As a result, once you've calculated your net profit on Schedule C, you'll need to go on to Schedule SE.

Do you also file taxes in the country you're in?

The host country in which you reside has a significant impact on the amount of self-employment taxes that you may owe. Although the deadlines are different, the amount of tax you owe on your business is also different. If you reside in the United Arab Emirates, you would not be required to pay any company taxes. Other countries, on the other hand, may charge you as much as 40% or more.


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