Self-employed Americans working abroad must pay income taxes (the IRS taxes worldwide income) but not everyone pays self-employment tax.
The US has Totalization Agreements with 25 countries to avoid double taxation on self-employment tax. Generally, US citizens or residents will stop contributing to US Social Security and Medicare—and start contributing to their foreign country’s social security system—after five years abroad.
All US citizens as well as residents at home and abroad enter self-employment the same way, so TurboTax automatically calculates self-employment tax.
Here’s how to remove it:
- Enter sch se in Search (magnifying glass) in the top right corner.
- Select Jump to sch se.
- On the Self-Employment Tax screen select Make Adjustments.
- On the Enter Income Adjustments screen enter a negative value equal to your SE income on Other SE NonFarm Profit (Loss), then select Continue.
- On the Self-Employment Tax screen you should see the following message, “That’s all we need for our calculation of self-employment tax, and you don’t owe self-employment tax for 2023."
You'll also need to print and mail your 1040. Write Exempt, see attached statement on Schedule 2, Part II, line 4 (Self-employment tax) and attach your exemption certificate.
You can obtain an exemption certificate from the authorized official or agency of the foreign country verifying that your wages are subject to social security coverage in that country.