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Self-employment is the greatest thing since sliced bread, minus the taxes.

According to my onboarding survey, 33% of Money Abroad readers know what I’m talking about. If you’re self-employed, hit reply and drop me a line. I’d love to hear from you.

Today, in 10 minutes or less, you’ll learn:

• 🤔 Self-employment taxes 101

• 🗾 How they work for self-employed US expats (at a high level)

• 🧰 Strategies that work/don’t work for reducing your US expat self-employment taxes

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💼 US expat self-employment taxes 101

US expat taxes get complicated.

Particularly for the self-employed, small business owners, and freelancers.

I know this because I’m one of them. I’m a US expat running my businesses through my LLC.

In this newsletter, I’m going to share what I’ve learned about US expat self-employment taxes 101.

Let’s dive in:

1/ Self-employed US expats should consider two types of taxes

• Income Tax - All US citizens, including expats, are required to file US income tax returns on their global income above a minimum filing requirement ($400 of net earnings for self-employed).

• Self-Employment Tax - All US self-employed folks, including expats, are required to pay Social Security and Medicare taxes (minus some exceptions covered below).

For the purposes of this newsletter, I’m going to focus on the latter: self-employment tax.

If you want to learn more about income taxes, Foreign Earned Income Exclusion, Foreign Tax Credits, then read my previous newsletter.

2/ Self-employed US expats have a 15.3% self-employment tax up to ~$169k, then 2.9% above that

In 2024, the IRS states that self-employed US expats are taxed 15.3% self-employment tax on net profits, which breaks down to:

• 12.4% tax on earnings of up to $168,600 for Social Security

• 2.9% tax on earnings for Medicare*

*If your earned income is >$200k ($250k for married couples filing jointly), you could also be subject to the Additional Medicare Tax of 0.9%

3/ Living in a totalization treaty countries + pay foreign social security is an option to reduce self-employment tax

Let’s start off with a tip that I found fascinating.

There are 3 types of tax-related agreements relevant to US expats:

1. Income tax treaties (list) - minimize and avoid double taxation of income earned between the US and the resident country of the US expat

2. Totalization agreements (list) - minimize and avoid double taxation of Social Security tax/contributions between the US and resident country of the US expat

3. Estate and gift tax treaties/provisions (list) - minimize and avoid double taxation of estate and gift taxes between the US and resident country of the US expat

(2) is the most relevant for self-employment tax.

Essentially, If you reside in one of 30 countries with a US totalization treaty and are registered in their social security program, then you may avoid your self-employment tax.

For example, self-employed US expats in Japan pay Japanese social security taxes, not US, due to the totalization agreement. Pretty cool.

3/ Foreign Earned Income Exclusion (FEIE) can NOT reduce your self-employment tax