Self-Employed Expats

Do Self-Employed Expats Have to Pay U.S. Taxes?

Yes. U.S. citizens and green card holders must report all income, no matter where they live. This includes foreign self-employment income earned overseas.

If you’re self-employed and earning $400 or more per year, you must file a U.S. tax return (Form 1040) and pay self-employment tax on foreign earned income to cover Social Security and Medicare contributions. Even if you pay taxes in your country of residence, you may still owe U.S. taxes.

Key points:

✅ The U.S. taxes worldwide income, including foreign self-employment income.
✅ If you earn $400+ from self-employment, you must file a tax return.
✅ Self-employment tax is 15.3% and covers Social Security & Medicare.
✅ Paying self-employment tax may still be required even if taxed abroad.

Understanding U.S. Self-Employment Tax for Expats

Unlike salaried employees who have Social Security and Medicare taxes withheld from their paycheck, self-employed individuals must pay these taxes directly. This is known as self-employment tax on foreign earned income and is calculated on Schedule SE (Form 1040).

For 2025, the self-employment tax rate remains at 15.3%:

• 12.4% for Social Security (on income up to $168,600)
• 2.9% for Medicare (on all earnings)
• If your income exceeds $200,000 ($250,000 for married couples filing jointly), you may be subject to an additional Medicare tax of 0.9%.

Even if you qualify for the Foreign Earned Income Exclusion (FEIE), your self-employment tax on foreign earned income is still due unless exempt under a Totalization Agreement.

How to Report Foreign Self-Employment Income

As a self-employed expat, you must report all business income and expenses to the IRS. This is done using several key tax forms:

What Tax Benefits Can Self-Employed Expats Claim?

Self-employed expats may be able to reduce or eliminate their U.S. tax burden through several tax benefits:

✅ Foreign Earned Income Exclusion (FEIE) – Form 2555

• Allows expats to exclude up to $120,000 (2025 estimate) from U.S. taxes.
• To qualify, you must meet either:
  • Physical Presence Test (330+ days abroad).
  • Bona Fide Residence Test (establish a permanent home abroad).

✅ Foreign Tax Credit (FTC) – Form 1116

• If you pay foreign income taxes, you may receive a self-employment tax credit to offset double taxation.
• Useful if you live in a high-tax country where local taxes exceed U.S. rates.

✅ Deducting Business Expenses – Schedule C

Self-employed expats can deduct business expenses such as:

• Home office expenses
• Travel & accommodation costs
• Internet & software subscriptions
• Professional fees & memberships

Do Self-Employed Expats Have to Pay State Taxes?

Possibly. Some U.S. states require expats to file state taxes, especially if they maintain residency there.

• No State Taxes Required: If you’re a resident of a tax-free state (e.g., Florida, Texas, Nevada).
• State Taxes May Apply: If you keep a mailing address, driver’s license, or voter registration in high-tax states (e.g., California, New York).

Tip: To avoid unnecessary tax obligations, sever state ties before moving abroad.

Social Security for Self-Employed Expats

Will you still receive Social Security benefits if you work abroad? Yes, as long as you continue paying self-employment tax.

However, if you live in a country with a Totalization Agreement, you may not have to pay both U.S. and foreign Social Security taxes. The U.S. has agreements with 26+ countries, including:

✅ United Kingdom
✅ Canada
✅ Germany
✅ France
✅ Australia

If your country has an agreement, you may only have to contribute to one country’s Social Security system instead of both.

How to File Taxes: Self-Employed as a U.S. Expat

✅ Step 1: Keep detailed records of all income and expenses.

✅ Step 2: Determine if you qualify for FEIE or FTC.

✅ Step 3: File Form 1040, Schedule C, and Schedule SE.

✅ Step 4: Report foreign bank accounts if required (FBAR).

✅ Step 5: Use IRS-approved tax software or consult an expat tax expert.

What Happens If You Haven’t Filed Your Taxes?

If you haven’t filed U.S. taxes for past years, you may qualify for the IRS Streamlined Filing Compliance Procedures, which allow delinquent filers to catch up without penalties.

To qualify, you must:

• Submit 3 years of late tax returns.
• Submit 6 years of FBAR reports (if required).
• Certify that your failure to file was non-willful.

Filing taxes as a self-employed expat may seem overwhelming, but with the right tax strategies, you can minimize your tax burden and stay compliant. Need help? Get expert tax support today!