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?
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.
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!
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?
@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/questions/4085646-self-employment-tax-exemption</a>
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.
Alternatively you can overwrite the SE taxes. You would need to go onto forms mode to do that.
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/publications/p590a#en_US_2017_publink1000230366</a>
The asker might not be using the FEIE, it is not always the best options.
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.
did you try the forms mode? That is really the only way to do it.
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.
Thank you to both of you. Your comments (and willingness to help) are very much appreciated.
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?
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?
@shirinjnk If you want to get the Earned Income Credit, you have to report Earned Income, so you would need to report your Self-Employment Income on Schedule C.
You would also need to pay the Self-Employment Tax on this income. Any overrides will prevent efiling.
If you paid tax on this income to a foreign country, take the Foreign Tax Credit to avoid being double-taxed.
Click this link for info on How to Claim the Foreign Tax Credit.
Thanks but SE tax will not go away with 1116, I have to manually overwrite or back it out with claiming the same amount in losses. I know I cannot e-file. I was just wondering if it would be ok to override SE tax to zero, not attach Sch SE (as recommended by IRS), and claim the earned income in schedule C, and therefore receive the EITC.
Yes, but if you claim earned income in Schedule C, you will need to pay SE tax thus need to include the Sch SE. The double-taxation treaty was designed for a taxpayer not to have to pay federal income tax in two countries that have a tax treaty. Too my knowledge, this does not include FICA Taxes.
You’re right but I found that IRS says this:
”If your self-employment income is exempt from SE tax, you should get a statement from the appropriate agency of the foreign country verifying that your self-employment income is subject to social security coverage in that country. If the foreign country won’t issue the statement, contact the SSA Office of International Programs. Don’t complete Schedule SE. Instead, attach a copy of the statement to Form 1040 or Form 1040-SR and enter "Exempt, see attached statement" on Schedule 2 (Form 1040), line 4.”
So they are asking for SE not to be attached and instead the certificate should be attached.
I just would like to know that since I did have “earned income” , and was present in the US for 11 months, can I claim EITC with no Sch SE attached per IRS’ instructions?
Earned Income Tax Credit is one of the most closely scrutinized credits by the IRS.
Your situation is certainly not in the most common seen by the IRS.
Your claim to be exempt from US Social Security and Medicare tax due to coverage by another country while you were present and self-employed in the US 11 months of the year is uncommon.
To be eligible for EITC you must be a citizen or resident alien the entire year.
You can manually adjust the foreign SE tax-related business income using negative values losses under:
Other tax situations -> Business Taxes -> SE tax
At the same time, mind that IRS will require you to have a 'foreign certificate of coverage' for such SE tax payment avoidance + leave notes under your SE form (wherever you find appropriate in TurboTax).
I don't think reporting losses in such a way is how it is supposed to be done officially, but this is the only technical way if you still want to e-file using the free TurboTax version.
>Don’t complete Schedule SE. Instead, attach a copy of the statement to Form 1040 or Form 1040-SR and enter "Exempt, see attached statement" on Schedule 2 (Form 1040), line 4.”
This seems to be the correct answer for the original poster's question (eteraoka)? But I am not an expert. I just spent a few hours researching this and it looks like the right way to fix the automatic overcharging of self-employment tax by Turbotax when it should not be charged if you're in a country with a "Totalization" agreement.
It seems to me the only the way to correct it is:
Go to Forms view in Turbotax, open "Sch SE-T" and set (Edit->Override) line 12, "Self-employment tax. Add lines 10 and 11. Enter here and on Schedule 2 (Form 1040) line 4." to zero (and Sched. SE-T also drops away from the final printout). That 0 gets carried over to Schedule 2 and then on Sched 2 line 4 you have to handwrite on the printout, "Exempt, see attached statement" and attach some kind of "certificate" from the country you're in about paying social security there. The certificate part seems _very_ nebulous to me and when I asked in my country the only thing they could provide was a printout of my payments for the past year, not really an official statement of coverage, but proof in some sense. They didn't seem to have any experience providing such a proof before.
But, like I say, I could be totally wrong. I just found no other/better answer.
Here are some references on the topic which seem to indicate the above approach:
https://www.ssa.gov/international/Agreement_Pamphlets/switzrld.html#elim_self
https://www.myexpattaxes.com/expat-tax-tips/featured/21-things-to-know-about-us-expat-taxes-in-2021
https://www.cpasforexpats.com/post/self-employment-as-a-us-expat
https://www.artiopartners.com/blog/social-security-benefits-living-abroad
https://expatfile.tax/foreign-earned-income-exclusion
https://www.greenbacktaxservices.com/blog/us-switzerland-totalization-agreement-overview-for-expats
https://www.irs.gov/instructions/i1040sse
https://www.irs.gov/individuals/international-taxpayers/self-employment-tax-for-businesses-abroad
Turbotax really drops the ball here again for people living abroad and does not handle this simple and common expat situation--it should know of the totalization agreement countries and just do it automatically, maybe asking a few questions if need be. Or is that asking too much?