Publication 54 - Tax Guide For U.s. Citizens And U.s. Citizens Abroad

of your employer and excluded from your in-

Only wages paid on or after the effective date

social security tax is $80,400. All net earnings of

come.

of the totalization agreement can be exempt

at least $400 are subject to the Medicare tax.

from U.S. social security tax.

Binational Social

Employed by a U.S. church. If you were em-

Security(Totalization)

ployed by a U.S. church or a qualified

Agreements

church-controlled organization that chose ex-

emption from social security and Medicare taxes

The United States has entered into agreements

and you received wages of $108.28 or more

with several foreign countries to coordinate so-

from the organization, the amounts paid to you

cial security coverage and taxation of workers

are subject to self-employment tax. However,

who are employed in those countries. These

you can choose to be exempt from social secur-

agreements are commonly referred to as totali-

ity and Medicare taxes if you are a member of a

zation agreements and are in effect with the

recognized religious sect. See Publication 517

Self-Employment

following countries.

for more information about church employees

and self-employment tax.

Austria

Luxembourg

Tax

Belgium

Netherlands

Canada

Norway

Effect of exclusion. You must take all of your

Finland

Portugal

self-employment income into account in figuring

France

South Korea

your net earnings from self-employment, even

Topics

Germany

Spain

income that is exempt from income tax because

Greece

Sweden

This chapter discusses:

Ireland

Switzerland

of the foreign earned income exclusion.

Italy

United Kingdom

•

Who must pay self-employment tax, and

Example. You are in business abroad as a

Under these agreements, dual coverage and

•

consultant and qualify for the foreign earned

Who is exempt from self-employment tax.

dual contributions (taxes) for the same work are

income exclusion. Your foreign earned income

eliminated. The agreements generally make

is $95,000, your business deductions total

sure that you pay social security taxes to only

Useful Items

$27,000, and your net profit is $68,000. You

one country.

must pay self-employment tax and Medicare tax

You may want to see:

Generally, under these agreements, you will

on all of your net profit, including the amount you

only be subject to social security taxes in the

Publication

can exclude from income.

country where you are working. However, if you

are temporarily sent to work in a foreign country

517

Social Security and Other

and your pay would otherwise be subject to

Members of the clergy. If you are a member

Information for Members of the

social security taxes in both the United States

of the clergy, you are treated as self-employed

Clergy and Religious Workers

and that country, you generally can remain cov-

for self-employment tax purposes. Your U.S.

ered only by U.S. social security. You can get

533

Self-Employment Tax

self-employment tax is based upon net earnings

more information on any specific agreement by

from self-employment figured without regard to

contacting the United States Social Security Ad-

Form (and Instructions)

the foreign earned income exclusion or the for-

ministration. If you have access to the Internet,

eign housing exclusion.

you can get more information at:

Form 4361

Application for Exemption

You can receive exemption from coverage

From Self-Employment Tax for

for your ministerial duties if you conscientiously

Use by Ministers, Members of

oppose public insurance due to religious rea-

Religious Orders and Christian

Covered by U.S. only.

sons or if you oppose it due to the religious

Science Practitioners

principles of your denomination. You must file

If your pay in a foreign country is sub-

Form 1040 – PR

Planilla Para La

Form 4361 to apply for this exemption.

ject only to U.S. social security tax and

Declaraci ´ on de la Contribuci ´ on

This subject is discussed in further detail in

is exempt from foreign social security

Federal Sobre el Trabajo por

Publication 517.

tax, your employer should get a certificate of

Cuenta Propia

compliance from the:

Form 1040 – SS

U.S. Self-Employment

Puerto Rico, Guam, Commonwealth of the

U.S. Social Security Administration

Tax Return

Northern Mariana Islands, American Samoa,

Office of International Programs

or Virgin Islands. If you are a U.S. citizen or

Schedule SE (Form 1040)

P.O. Box 17775

resident and you own and operate a business in

Self-Employment Tax

Baltimore, MD 21235.

Puerto Rico, Guam, the Commonwealth of the

Northern Mariana Islands, American Samoa, or

See chapter 7 for information about getting

Covered by foreign country only. If you are

the Virgin Islands, you must pay tax on your net

these publications.

permanently working in a foreign country with

earnings from self-employment (if they are $400

which the United States has a social security

or more) from those sources. You must pay the

agreement and, under the agreement, your pay

self-employment tax whether or not the income

is exempt from U.S. social security tax, you or

is exempt from U.S. income taxes (or whether or

Who Must Pay

your employer should get a statement from the

not you must otherwise file a U.S. income tax

authorized official or agency of the foreign coun-

return). Unless your situation is described be-

Self-Employment Tax?

try verifying that your pay is subject to social

low, attach Schedule SE (Form 1040) to your

security coverage in that country.

U.S. income tax return.

If the authorities of the foreign country will not

If you are a self-employed U.S. citizen or resi-

If you do not have to file Form 1040 with the

issue such a statement, either you or your em-

dent, the rules for paying self-employment tax

United States and you are a resident of any of

ployer should get a statement from the U.S.

are generally the same whether you are living in

the U.S. possessions listed in the preceding

Social Security Administration, Office of Interna-

the United States or abroad.

paragraph, figure your self-employment tax on

tional Programs, at the above address. The

The self-employment tax is a social security

either Form 1040 – PR or Form 1040 – SS,

statement should indicate that your wages are

and Medicare tax on net earnings from self-em-

whichever applies.

not covered by the U.S. social security system.

ployment of $400 or more a year.

You must file these forms with the Internal

This statement should be kept by your em-

For 2001, the maximum amount of net earn-

Revenue Service Center, Philadelphia, PA

ployer because it establishes that your pay is

exempt from U.S. social security tax.

ings from self-employment that is subject to the

19255 – 0215.

Page 10

Chapter 3 Self-Employment Tax

Publication 54 - Tax Guide For U.s. Citizens And U.s. Citizens Abroad - 2001 Page 10

Related Articles

Related forms

Related Categories