Self-employment tax and US-UK Social Security Agreement

[derrickbarth]

I am filing for 2018, but this will apply to 2019 and later years as well. I am using the desktop app.

I live in the UK year-round and have Self-Employment income. When I fill in my business income in TurboTax I am able to exclude it under Foreign Earned Income Exclusion but it still shows I owe SE tax of $4,522.

However, I am already paying the UK's National Insurance (aka "social security") on this income. Under the US-UK Social Security Agreement, I should not need to pay the US SE tax, as described under Part II Article 4.3 here: https://www.ssa.gov/international/Agreement_Texts/uk.html

My questions:

1. Is my reading of the agreement/double taxation correct?
   
   
2. How do I instruct TurboTax to reduce my SE tax owed to zero? Do I add a negative value under the Business section somewhere, perhaps under "Other income"?
   
   
3. Are there any additional forms I need to include with my return when I mail it in? Perhaps one of these:
   Form 8833
   Form W-8BEN

Note: the UK only appears to provide a "certificate of coverage" for people covered under UK but working overseas, and for specific date ranges. I am the opposite; coming from the US and staying indefinitely. I do, however, have proof of my UK National Insurance number and contributions per-year.

[DoninGA]

You would need to overwrite the value for the SE taxes with Zero. You can do that with the desktop version of Turbotax.  Click on Forms.  On the Schedule SE, Override the taxes  (using Windows, right click on the box, select Override).

With a Overridden value, the tax return can only be printed and mailed.

[derrickbarth]

Thank you, but won't the IRS require some rationale behind zero'ing out the taxes owed? Do I need to include an additional form, such as the ones outlined in my post?

[DoninGA]

If you have a Certificate of Coverage from your UK employer that should be attached to the mailed tax return.

If you are a US citizen you cannot use IRS Form W-8BEN

Not sure about Form 8833   So will ask one of our other members who has experience with these matters.  

@pk Could you give me a hand here, please?

Social Security website for the Totalization Agreement and Certificate of Coverage US/UK - https://www.ssa.gov/pubs/EN-05-10199.pdf

[derrickbarth]

Yes I am a US citizen.

I am in the UK on my own visa, and as stated this is for Self-Employment income. I do not have an employer to provide a Certificate of Coverage.

The only UK Certificate of Coverage I can find one where UK employers are sending employees to work in other countries. I do not fall under that scenario.

EDIT: I see some valuable and helpful instructions in that link that specifies who I should write to in the UK in order to obtain a Certificate of Coverage. I think that may be exactly what I was looking for!

[derrickbarth]

I am having a difficult time understanding which specific certificate to request from the UK, as there are several

• A1
• E101
• Certificate of Continuing Liability

All of these pertain to when someone from the UK is leaving to work elsewhere. I can't find a single description in any form/pdf of a "certificate of coverage" that I would get from the UK to show the US stating that I am in the UK and do not owe Social Security to the US.

[DoninGA]

Well, the Social Security link says to contact the UK Inland Revenue, so there should be a local or toll free number for you to call where you can explain your situation.  Being a self-employed US citizen working in the UK is not a unique situation, so getting assistance should be, hopefully, not that difficult.

[jg0382]

How did that work out for you? I'm in the same position. The publication says if you're in the UK, you should contact the local DWP office. That seems weird; you'd think HMRC would be in charge of this. Have you tried DWP, and did it work? Otherwise, I find the same thing you have: it's easy to find where to apply for a certificate that a UK person overseas is covered by UK national insurance overseas, but there seems to be nowhere to apply for a certificate that a foreign (US) person in the UK is covered by UK national insurance.

[derrickbarth]

I finally (I think) figured out what to do in this situation. Here's what you need to do:

1. Fill out your whole tax return like normal, let TT do its calculations

2. Once everything is complete, go into Forms mode and on Schedule SE, line 5 apply an override and remove the SE tax

3. Call National Insurance, tell them your situation and that you are seeking a Certificate of Coverage. They seemed to understand this request fine and forwarded me to the International Caseworker department

4. Once you eventually get this (I am still waiting for mine), print out your tax return and mail it in along with a copy of the certificate

E-filing will not work with this process, you need to mail in a paper return with the certificate.

Some assistance from TurboTax for this scenario in future releases would be greatly appreciated.

[car377]

Thanks for the detailed steps.  The step for "Call National Insurance" is problematic.  Not everyone there appears to know the specific department that handles US citizens living in the UK and working self-employed.  The "International Caseworker department" may be some help (my son is trying it now), but I'm worried about him getting directed to the path for UK citizens who plan to work in the US, instead of the reverse.  The instructions posted on the ssa.gov site (https://www.ssa.gov/pubs/EN-05-10199.pdf, bottom of page 4) tells US citizens self-employed in the UK to send a letter requesting the Certificate of Coverage to an Inland Revenue office in Newcastle upon Tyne, but perversely, the text around that address indicates it's for those living outside the UK. (!) The guidance on page 10 for those living in the UK is "contact your nearest office of the Department for Work and Pensions."  That doesn't work at all.  Contacting HMRC resulted in a copy of  his National Insurance Record (list of annual payments to National Insurance since 2009), which should be proof enough, but I suspect the IRS will bounce that and require a Certificate of Coverage instead. This is ridiculously difficult.

[derrickbarth]

Sorry it's been so difficult for you. In my case when I called National Insurance, all I had to do was tell them I was looking for a Certificate of Coverage and they knew who to transfer me to. The person I ended up speaking to knew exactly what I needed.

[AlyseBaker01]

Hello,

I'm so glad I found this thread as I've been googling all day to figure this out. Just wondering, did you get the proper certificate? and how long did it take to get to you?

Thanks!

[car377]

It only took a couple of weeks last year, after the correct department was (finally) identified.  Had to explain more than once that the form needed from HMRC was the proof of contribution to UK national insurance to satisfy the US requirements for documentation per the "US-UK Totalization Treaty", for self-employed Americans living in the UK.  The certificate they sent is titled, "Certification that you're under United Kingdom (UK) Social Security laws self-employed in the UK", and it is identified as form "CA3940  HMRC 03 20"  in the form footer.   It provides:

1. US social security number

2. UK National Insurance Number

3. Your name and address and a daytime phone number

4. Date residence in UK began

5. Date self-employment in the UK began

6. Type of self-employed business

At the bottom of the form the following notification appears:

"We've sent a copy of this form to:

Office of Central Operations

Social Security Administration

PO Box 17741

Baltimore

Maryland [removed]

USA"

The cover sheet contains this contact information for that office:

HM Revenue & Customs

NIC&EO

BX9 1AN

United Kingdom

Phone +44 (0) 3000 555 724

Mon - Thursday 08.00 to 17.00

Friday 08.00 to 16.30

Fax +44 (0) 191 22 59570

hmrc.gov.uk

I'd advise calling the above number (telephone, not FAX, of course) and explain exactly what you need to them, using their form name described above.  Good luck!

[car377]

BTW, if you're using TurboTax to file your US taxes, you have another problem to solve.  There's no obvious mechanism to zero out the self-employment tax entries generated by TT and added to your tax owed.  There are various threads on this forum about how to deal with that, and the advice changed again for tax year 2020, because TT changed, as it does from year to year.  This year, I used TurboTax Home and Business 2020 , downloaded to my laptop, not the online version. What I had to do, based on what I read in other threads, was first run TT to completion, so that it generated the SE tax and showed it on the final forms.   Then I had to:

1. Navigate to "View->Forms".

2. Open the form called, "SE Adj Wks" (Self Employment Adjustments Worksheet).

3. Scroll to Part II "Nonfarm Profit or (Loss) Schedule SE, line 2".

4. Note the value entered on line 1a in Part II, "Total Schedules C".

5. Enter that same value on line 7 in Part II, "Less other SE exempt nonfarm profit or (loss)".

6. When I did that, the value on line 8 in Part II, "Total for Schedule SE, line 2" zeroed out, and my tax owed no longer included SE tax.

I didn't find any way to annotate that particular change, i.e., add a note that explains to the IRS why I entered that value on Part II, line 7.   I attached the HMRC form CA3940 to the return, which may be sufficient explanation.  If it's not, I'm sure they'll let me know.  :(

At some point, I hope TT elects to address this need to the step-by-step walkthrough, so we don't have to mess with it after the fact.  I've been waiting years for that to happen, though, so not holding my breath.

[mcook]

Hi,

I have a question, I am in the same situation.

I would like to exclude my self-employed income. I already filed, but I used the online TurboTax. I need to amend now because they couldn't process of my tax returns. The problem is that I can't download the desktop app, and I can't overwrite the SE tax online. Can you help me in this case how can I make adjustments directly on SE tax form? What did yours look like after you adjusted the SE worksheet? I would like to see one example ( fictive numbers are okay, or just X-es which lines were/stayed filled) I just really need help and I need to mail this in soon.

Thank you for your help!