Is there a way to reduce self-employment taxes to account for totalization agreements?

[eteraoka]

I'm a self-employed US citizen living in Belgium, which has a totalization agreement with the US. Since I pay all social security taxes here, I should not have to pay US self-employment taxes. I have the necessary certificate to prove this. My question is, what can I do on TurboTax so that the tax I owe is 0? (The only tax I owe is the self-employment tax which I should not have to pay.) I could not get this to work last year and ended up mailing my return with a copy of the certificate. Is there a way to make this work electronically?

[bine22 · Accepted solution]

You would need to overwrite the value for the SE taxes with Zero. You can do that with the desktop version of Turbotax. However, you most likely cannot efile with an overwrite.

[eteraoka]

I thought so… I guess I'll have to keep on mailing it in until they start giving us the option of uploading the certificate and marking ourselves "exempt". Thanks for your comment!

[ramotoko2018]

I am using the mac version.  How can I overwrite the SE taxes at zero?  Are you referring to the Form SE or to the worksheet?  

[TaxGuyBill]

@ramotoko2018   I'm not sure if the mac version is the same, but this link may help you:
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4085646-self-employment-tax-exemption">https://ttlc.intuit.com/que...>

[ramotoko2018]

Thank you for the speedy reply.  The adjustment solves the SE tax problem but, by reducing my income to zero, results in my IRA contributions becoming non-deductible (as they exceed my Turbotax computed earned income) resulting in the imposition of penalties.   Grrr.  Still working on this.

[bine22]

Alternatively you can overwrite the SE taxes. You would need to go onto forms mode to do that.

[TaxGuyBill]

If all of your Earned income is being excluded by the Foreign Earned Income Exclusion, you don't qualify to contribute to an IRA.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p590a#en_US_2017_publink1000230366">https://www.irs.gov/publication...>

[bine22]

The asker might not be using the FEIE, it is not always the best options.

[ramotoko2018]

Correct.  In my case, I will not be using the FEIE exclusion.

I report K-1 income on Part II, line 2 of the Schedule SE Adjustments Worksheet.  If I reverse that by adding negative income in Part II, line 6 (Other nonfarm profit or loss), that reduces SE income to zero and eliminates the tax (as if proper under the totalization agreement) but leaves me with no earned income and unable to claim an IRA deduction.

(If I do not reverse the SE income, the K-1 business income is picked up on Schedule E and treated as earned income, so it is not a K-1 issue so far as I can tell.)

So, thanks to each of you for your suggestions, but so far no fix.  I will keep experimenting.

[bine22]

did you try the forms mode? That is really the only way to do it.

[TaxGuyBill]

Interesting, I didn't realize that the program incorrectly used Schedule SE to help determine "Earned Income" (actually, now that you mention it, I do seem to remember reading a similar situation to yours).

As bine22 said, I think the only way to do things will be to ignore any warnings about not being allowed to contribute to an IRA, and to override things (such as the penalty) in Forms mode.

[ramotoko2018]

Thank you to both of you.   Your comments (and willingness to help) are very much appreciated.  

[NBananni]

Can you use Schedule C to reduce Self Employment Income by pension expense SchC Part II no19 to the point where you don't pay SE tax ie less than $400 - and then be allowed to contribute to an IRA?

[shirinjnk]

Hi!

I have the same situation where if I adjust my SE income to zero, I will have no EITC (I was present in the Us for 11 months and am eligible for it). Did you find a way around that? Should I just fully include my income on Sch SE and then go on form 1 and literally override SE taxes to zero?