Does Foreign Earned Income count as Self-Employment income?

[siger]

During 2022 I've traveled abroad and while abroad, worked as a contractor for a foreign company earning $11,000 USD. I've decided not to claim the Foreign Earned Income Exclusion. I am single and have no other income of any kind.

I'm now trying to report this income and I'm confused between the ways TurboTax offers to do so.

• Entering $11,000 in the Self-Employment income section yields a Federal tax owed of $1,115 (10.1%). Isn't the self-employment tax 15.3%? Is this only for US-sourced income?

• Instead, entering $11,000 in the Foreign Earned Income section (without claiming the Exclusion) yields a Federal tax refund of $417. Why would I not have to pay taxes on this? For the exercise, I pretended to claim the Exclusion and it brought down the amount to $0 (expected).

Am I supposed to report the $11,000 figure in both the Self-Employment and Foreign Earned Income sections? Doing so yields $2,469 in Federal tax owed (22.4%).

[JohnB5677]

You've almost answered your own question.

Entering $11,000 in the Self-Employment income section yields a Federal tax owed of $1,115 (10.1%). Isn't the self-employment tax 15.3%? Is this only for US-sourced income?

• You get a standard deduction of $12,950, so there will be no income tax assessed.
• You are correct that the self-employment tax is 15.3%.
  • I expect that you took expenses of $7,288.
  • That would yield self-employment tax of $1,115.

Instead, entering $11,000 in the Foreign Earned Income section (without claiming the Exclusion) yields a Federal tax refund of $417. Why would I not have to pay taxes on this? For the exercise, I pretended to claim the Exclusion and it brought down the amount to $0 (expected).

• I can see that you would not owe any taxes, but I'm Not sure where the refund came from.
• You may wish to take a look at your tax return (1040)

1. On the menu bar on the left that shows.
   1. My Info
   2. Federal
   3. State
   4. Review
   5. File
2. Select Tax Tools
3. On the drop-down select Tools
4. On the popup menu
5. Select View Tax Summary
6. On the left sidebar

Select Preview my 1040.

Line 15 - Taxable Income

Line 24 - Total Tax.

Line 25 - Withholdings.

Line 33 - Payments including Credits.

Line 34 - Overpayments.

Line 37 - Tax owed.

[siger]

Thanks @JohnB5677 for your reply. Viewing my 1040 preview clarified both scenarios. Note that I do not have any expenses/deductions.

• Entering $11,000 as Self-Employment income, the following happens:
  • The 15.3% self-employment tax applies to 92.35% of that amount (source), which yields ~$1,555 tax owed.
  • This income qualifies for an Earned Income Credit of $479, reducing my tax owed to $1,076.
  • I owe a $39 tax penalty (I assume for lack of pre-payments), bringing the total to $1,115.
• Entering $11,000 as Foreign Earned Income and nothing else:
  • Self-employment tax does not apply.
  • An Earned Income Credit also applies, but for $417 this time, representing the total refund. 

I am left with having to choose which method to use. Can I report this income only as Foreign Earned Income by way of having worked for a foreign company while abroad? Evidently that approach is beneficial to me, but I am wanting to pick the correct one.

[JohnB5677]

I suggest you post it as foreign income.

• Filing your foreign income on your taxes gives you the opportunity to qualify for and claim the EIC, is going to lower the amount of taxes and result in a refund.
• However, you should keep in mind that you must have lived in the US for at least half the year to use the Earned Income Tax Credit.
• If you are uncertain about whether or not you qualify, it’s best to consult with an accountant.

To qualify for the EITC, you must:

• Have worked and  earned income under $59,187
• Have investment income below $10,300 in the tax year 2022
• Have a valid Social Security number by the due date of your 2022 return (including extensions)
• Be a U.S. citizen or a resident alien all year.
• Not file Form 2555, Foreign Earned Income     You did not file for the exclusion.
• Meet certain rules if you are separated from your spouse and not filing a joint tax return.

Who Qualifies for the Earned Income Tax Credit