Why is my w2 income exempt as foreign income and not my 1099 income?

[satoveillon]

To clarify, last year 100% of my income was a W2 from my one employer.  Because I lived overseas all year and pay tax in that foreign country, my tax liability in the US was zero, and I got all of the tax my employer deducted back.  In March of 2019 my employer switched me to 1099 (contract employee), so this year filing taxes I have both a W2 for the first few months and 1099 for the rest of the year.  Otherwise, nothing has changed.  Yet TurboTax suggests I have to pay over $9k in tax.  I don't think this should be the case.  I should get back the tax that was taken out on the W2, like last year, and that's it.  No tax was taken out on the 1099, but since I don't owe US tax, that should be fine, I just don't get anything back on the 1099.  I know this is based on logic and not tax law (partly), but I don't see a reason why it shouldn't be that way.  Someone please enlighten me to why this is correct, or how to fix TurboTax so that my tax obligation is what I expect.

[KarenJ2 · Accepted solution]

Unfortunately, when your employer switched you from employee to independent contractor, you became responsible for SECA (self-employed workers payment of both the employer and employee portion of FICA which is 12.4% of your net self-employment income).

Foreign earned income exclusion is a reduction in regular income tax but not from SECA..  Foreign tax credit cannot offset SECA.

You need to first enter your self-employment income and expenses in the self-employment section of TurboTax.  After that you enter your self-employment income before expenses in the foreign earned income exclusion section of TurboTax, completing all the screens.