US Expat Tax Service for Self-Employed Individuals

Written by: Josh Katz, CPA

Understanding self-employment tax is an important consideration for freelancers or self-employed individuals. As an independent contractor, you are responsible for managing your own taxes, which encompass Social Security and Medicare contributions. Whether you’re living in the US or have moved abroad, it’s crucial to grasp the ins and outs of self-employment tax to ensure compliance with the IRS.

If you are a self-employed US expat and need expert assistance in understanding and managing your tax filing requirements, Universal Tax Professionals is here to provide the support and guidance you require.

Our team of tax professionals is well-versed in the intricacies of the US tax code. Whether you need assistance with reporting foreign income, claiming relevant tax credits and deductions, understanding your filing obligations as a self-employed individual, or need other US expat tax services, our experts are committed to delivering personalized solutions tailored to your specific needs.

Do I Need to Pay US Taxes as a Self-Employed Individual?

Yes, self-employed individuals are required to file and pay US taxes if their net earnings from self-employment reach at least $400 in a tax year. In most cases, self-employed individuals must make estimated tax payments throughout the year. If you fall under this category, it’s your responsibility to maintain precise records of your income and expenses.

US Taxes for Self-Employed American Expats

As a self-employed US expat, you are subject to the same tax obligations as self-employed individuals living in the US and are required to pay the following taxes:

  • Self-employment tax is a combination of Social Security and Medicare taxes on net earnings from self-employment.
  • Federal income tax, which is calculated based on the self-employed individual’s net earnings from self-employment
  • State and local taxes, if applicable, depending on the location of the expat’s residence

Self-employed US expats must file Form 1040 – Schedule C to report their self-employment income, expenses, and deductions. They must also calculate and report self-employment tax liability on Schedule SE.

Self-Employment Tax on Foreign Earned Income

Self-employment tax is applied to worldwide income, including foreign-earned income. Most US expats utilize Form 2555 to claim the Foreign Earned Income Exclusion (FEIE), which allows them to exclude a portion of their foreign income from US taxation.

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2024 Self-Employment Tax Rate

However, it’s crucial to note that FEIE only pertains to income tax and does not exempt self-employment tax.

Similarly, other tax benefits like the Foreign Tax Credit and Foreign Housing Deduction do not apply to self-employment income.

Nevertheless, self-employed US expats may be eligible for an exemption from paying US social security tax if they pay social security taxes in a foreign country with which the US has a totalization agreement.

2024 US Tax Deductions for Self-Employed Individuals

Self-employed individuals can use various deductions to minimize their US tax liability. Some of the most common ones include:

  1. Business Expenses: Self-employed individuals can deduct ordinary and necessary expenses directly related to their business, such as rent, utilities, office supplies, marketing and advertising expenses, and business travel.
  2. Home Office Deduction: If you use part of your home exclusively for business, you can deduct expenses related to that part of your home.
  3. Health Insurance Deduction: Self-employed individuals who pay for their own health insurance may be able to deduct 100% of the cost of their premiums.
  4. Retirement Plan Contributions: Self-employed individuals can contribute to a retirement plan, such as a SEP-IRA or Solo 401(k), and deduct the contributions from their taxable income.
  5. Self-Employment Tax Deduction: You can deduct half of your self-employment tax from your taxable income.
  6. Startup Costs: You can deduct up to $5,000 in startup costs in the year you start your business and amortize the rest over 15 years.
  7. Educational Expenses: If you take courses or attend workshops to improve your skills or knowledge related to your business, you can deduct these expenses.

It’s important to note that the availability and limits of these deductions may vary based on your specific circumstances and the tax laws in your country of residence.

Form 1099 for Self-Employed Individuals

As a US independent contractor living abroad, you usually won’t submit Form 1099. Your US client, who paid you at least $600, should provide you with Form 1099-NEC (Non-Employee Compensation), which you must report on Schedule C of your Form 1040.

If your client is not from the US, you won’t receive a Form 1099. In such cases, you’ll need to monitor your own income and report it on your US tax return.

Form 1099 - Self-Employed

Common Questions of Self-Employed US Expats

How do I determine if I am considered a self-employed individual for tax purposes?

To determine if you are considered a self-employed individual for tax purposes, the Internal Revenue Service (IRS) provides the following criteria:

  • You carry on a trade or business as a sole proprietor or an independent contractor.
  • You are a member of a partnership that carries on a trade or business.
  • You are otherwise in business for yourself (including a part-time business).

If you meet any of these criteria, you are considered self-employed and must report your self-employment income on your tax return.

Do I need to pay estimated taxes?

If you expect to owe $1,000 or more in taxes for the year, you’re generally required to make estimated tax payments quarterly. You can use Form 1040-ES to calculate your estimated tax liability and make payments.

When are self-employment taxes due?

Self-employment taxes are typically due every quarter. The 2024-2025 due dates for estimated tax payments are as follows:

  • First quarter (January 1 – March 31): April 15, 2024
  • Second quarter (April 1 – May 31): June 17, 2024
  • Third quarter (June 1 – August 31): September 16, 2024
  • Fourth quarter (September 1 – December 31): January 15, 2025

Do I need to pay state taxes if I'm a self-employed expat?

Self-employed individuals living abroad may be required to pay state taxes in the US if their income is subject to state-level taxation. State income tax obligations vary, and they depend on factors such as the individual’s tax residency and the state’s specific rules in which they resided before moving abroad.

Universal Tax Professionals

Need help with your US Expat Taxes?

Generally, if a self-employed individual is considered a tax resident of a particular state, their income, including foreign-earned income, may be subject to that state’s income tax. State income tax rates vary by state and can range from 0% to over 12%.

Do I need to pay US self-employment tax if I'm a dual citizen living abroad?

Yes, dual citizens living abroad are required to pay self-employment tax on their foreign-earned income if they meet the filing threshold of $400 in a single year. Dual citizens, like US citizens and residents, are subject to US taxation on their worldwide income.

2024 US Expat Tax Guide

This comprehensive guide is packed with helpful information and expert advice to make sure you stay on top of your US tax obligations.

US Tax Guide for American Expats