If your daughter was not an employee, she is considered self-employed and will have to file a Schedule C as part of her tax return. TurboTax Self-Employed Online or Home & Business CD\Download can prepare this form.
Three steps
There are three steps to this process.
- Preparing your self-employment form
- Excluding Social Security tax
- Claiming a foreign tax credit, if applicable
Preparing your self-employment form
Your daughter will list her gross earning and subtract her expenses on Schedule C. The difference will be the taxable amount.
If the “middle man” was a US company, your daughter should get a Form 1099-NEC listing self-employment income. Otherwise, you can enter the amount separately.
Where do I enter Schedule C?
Excluding Social Security tax
Self-employed individuals generally pay self-employment tax along with income tax since Social Security and Medicare tax are not withheld.
However, people working overseas are not subject to self-employment tax on foreign earnings due to totalization agreements.
Totalization Agreement with Spain
Alumni Tax Expert @JeffreyR77 explains how to remove self-employment tax from your return in I live abroad and pay social security taxes to a country with a totalization agreement. How can I re...Be sure to click on the link in the post.
Foreign Tax Credit
If your daughter paid income tax to Spain, she can claim a foreign tax credit or deduction on her US tax return (the tax credit generally saves more money).
Where do I enter the foreign tax credit (Form 1116) or deduction for 2020?
Foreign Earned Income Exclusion
Finally, taxpayers working overseas may be able to exclude some or all of their foreign earned income. To do this, you must be a “bona fide” resident of a foreign county or spend 330 full days outside the US during a 12-month period. Your daughter probably does not quality. If she does, there is another section of TurboTax to fill out.
Foreign Earned Income Exclusion
