Self-Employment Tax for US Expats

One of the most common surprises for self-employed expats is that the Foreign Earned Income Exclusion does not eliminate self-employment tax — you can exclude your income from income tax, but you still owe the 15.3% self-employment tax on your net self-employment income. Self-employment tax covers Social Security and Medicare contributions, and the IRS treats it separately from income tax. The only way to avoid US self-employment tax as an expat is if you live and work in a country that has a totalization agreement with the United States and you're paying into that country's social insurance system instead. If you're self-employed and covered by a totalization agreement, you can file Form 4029 or attach a certificate of coverage to your return. Without a totalization agreement, self-employed US expats owe both US self-employment tax and whatever social taxes their host country charges.