I am living in Belgium and want to exclude my 1099-NEC income from my taxable income due to the totalization agreement excluding SS payments. Where should I list this?

[aleclinderman-gm]

Should it be listed in the foreign earned income exclusion or in the self-employment 1099-NEC? Also, I don't see anything regarding the totalization agreement in either place, so I want to make sure this works. Thank you in advance.

[SusanY1]

You will enter your income in both places, to take advantage of the exclusion from self-employment tax as well as regular income tax.  You will also need to file by mail, as you are required to submit a copy of a certificate from Belgium's National Social Insurance Institute for the Self-Employed.  Here is the information on how to obtain that certificate, if you do not have it already:  Totalization Agreement for Belgium.

TurboTax won't refer to the totalization agreement, but it does contain a way to adjust for it as follows:

You will enter your 1099-NEC and any associated expenses in the section for self-employment income in TurboTax.  Once you have determined what your net income from self-employment is (Schedule C, Line 31) you will make an adjustment to self-employment expense as follows:
 

1. Navigate to Business Income and Expenses
2. Under the heading for Business Taxes click on Start or Update beside Self-employment tax.
3. On the screen with the heading Self-Employment Tax click on the option to Make Adjustments.
4. Enter the amount of net self-employment earnings as a negative number on the line for Other SE NonFarm Profit

These steps will remove the self-employment tax that is covered under your Totalization Agreement. 

To exclude your net income from self-employment from regular income tax, you will navigate to Foreign Earned Income and Exclusion under Less Common Income in Personal Income (or Wages & Income).  Go through the interview here and select all of the options that apply for your situation.  The interview screen here asks for the Foreign Gross Profit.  This is the same number that is listed on Line 31 of Schedule C in most cases.  This number will require adjustment if less than 100% of your Schedule C income was earned while abroad or if you have interest or investment income in addition to the earned income as part of your Schedule C profit. 

Here, you are entering the income that will be excluded as a positive number.  It will not double the income - this section is identifying which income on your return is subject to exclusion.  You may prefer, if you are paying tax on this income in Belgium to skip the exclusion section and use the foreign tax credit section of the program (under Deductions & Credits, Estimates and Other Taxes Paid, Foreign Taxes) instead.  This is particularly true if you have children who are dependents under the age of 17.   Caution:  If you have used the foreign earned income exclusion in prior years and you switch to the foreign tax credit, you will not be able to use the exclusion again for five years without special permission from the IRS.  

[aleclinderman-gm]

Thank you @SusanY1 so much for the detailed response to my question! It is very appreciated! 

I do have one additional question: You mentioned that the additional form will have to be mailed in. Is there an option to scan the document and include it in the digital filing package? This is likely a process that will happen multiple years, and I trust electronic delivery much more than international mailing. Thank you in advance. 

[DaveF1006]

No. At this time, Turbo Tax does not have the ability to scan documents and file electronically.

@aleclinderman-gm 

[aleclinderman-gm]

Hi @SusanY1 and @DaveF1006,

I am trying to do the same thing as last time year. Now all of my income is from a foreign source and there is no 1099-NEC. I have gotten the certificate for the totalization agreement, but it appears that the TurboTax format has changed. I no longer see the steps you listed below: 

1. Navigate to Business Income and Expenses
2. Under the heading for Business Taxes click on Start or Update beside Self-employment tax.
3. On the screen with the heading Self-Employment Tax clock on the option to Make Adjustments.
4. Enter the amount of net self-employment earnings as a negative number on the line for Other SE NonFarm Profit

Can you please provide a way to update this information in the new TurboTax format?

Thank you in advance,

Alec

[SusanY1]

This year, Business Taxes is found under the heading "Other Tax Situations".   

From there, the rest of the steps remain the same. 

The full set of steps would now be:

1. Navigate to Other Tax Situations
2. Under the heading for Business Taxes click on Start or Update beside Self-employment tax.
3. On the screen with the heading Self-Employment Tax click on the option to Make Adjustments.
4. Enter the amount of net self-employment earnings as a negative number on the line for Other SE NonFarm Profit