Self-Employment Taxes for Americans Living Abroad in 2025

Being your own boss abroad comes with plenty of perks, flexibility, independence, and control. Yet it also brings more responsibilities one of those being taxes. If you’re a US citizen or Green Card holder living overseas, you must report your worldwide income to the IRS, and that includes self-employment income. This rule applies even if every client you serve is outside the US or your business operates entirely abroad.

Because the filing threshold is just $400 in net earnings, even a small side gig can trigger a filing requirement. That’s why many expats are surprised to learn they owe US self-employment tax.

Whether you’ve started your own business abroad or are living the digital nomad lifestyle, you’ll still need to understand how US self-employment tax works. In this guide, we’ll explain what SE tax is, how much you’ll pay, how to calculate it, and practical ways to reduce your liability.

What Is Self-Employment Tax?

Self-employment tax funds Social Security and Medicare. If you’re self-employed abroad, you must pay both the employer and employee portions, which together total 15.3% of your net earnings.

Here’s how it works for 2025:

• Social Security – 12.4% of netr earnings, applied only up to $176,100 for 2025. This threshold adjusts annually for inflation.
• Medicare – 2.9% on all self-employment income, with no limit.
• Additional Medicare Tax – 0.9% extra on income above $200,000 (single) or $250,000 (married filing jointly).

How to Determine if You Are Self-Employed:

If you’re freelancing or running your own business abroad, you need to know whether the IRS considers you self-employed or an employee. The IRS looks at your level of control and independence to decide.

IRS Common Law Rules

1. Behavioral: Does the company control or have the right to control what you do and how you do your job?
2. Financial: Are the business aspects of your job controlled by the payer? (These include things like how you are paid, whether expenses are reimbursed, who provides tools/supplies, etc).
3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

No single factor is decisive. The IRS looks at the overall relationship to make a determination.

Example: Anna is a freelance graphic designer living in Spain. She sets her own hours, chooses her clients, and works from her laptop anywhere she wants. Since no employer controls how or when she works, the IRS considers her self-employed, and her earnings are subject to US self-employment tax.

How Much Is Self-Employment Tax?

Normally, if you’re a salaried employee in the US, your employer withholds half of your Social Security and Medicare taxes from each paycheck, while the company pays the other half.

When you’re self-employed, however, you’re responsible for both portions yourself, which is why the rate is 15.3% instead of around 7.65%.

The IRS does give you relief in two ways:

• Adjusted base – You only apply the 15.3% tax to 92.35% of your net profit (not the full 100%).
• Employer-equivalent deduction – After calculating your SE tax, you can deduct half of it when figuring out your adjusted gross income. This lowers your taxable income for regular federal income tax purposes, even though it doesn’t reduce the SE tax itself.

We’ll show the actual numbers in the calculation section below.

How Do I Calculate Self-Employment Tax?

To figure out how much self employment tax you owe, start with your net profit (income minus business expenses). The IRS then applies an adjustment, taxing only 92.35% of that profit to account for the employer-equivalent deduction. Finally, the 15.3% self-employment tax rate is applied to that adjusted amount.

Example: Maria is a US citizen living in Portugal working as a freelance web developer. In 2025, she earns $60,000 in net self-employment income after deducting expenses.

• Adjusted income: $60,000 × 92.35% = $55,410
• SE tax owed: $55,410 × 15.3% = $8,470

Maria will owe $8,470 in self-employment tax to the IRS, even though she lives and works entirely outside the US. However, when figuring out her regular income tax, she can further deduct half of that amount (about $4,235) as the “employer-equivalent” portion. This doesn’t reduce the SE tax bill itself but does lower her taxable income for income tax purposes.

Expat Tax Benefits vs. Self-Employment Tax

The Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC) are powerful tools that can eliminate or greatly reduce your US income tax. The FEIE excludes up to Default String of foreign income in 2025, while the FTC provides a dollar-for-dollar credit for taxes paid abroad. But neither applies to self-employment tax. Many expats are surprised to learn they can owe thousands in SE tax even when their US income tax bill is zero.

Example: Michael, a self-employed consultant in Belgium, reports $75,000 in net earnings for 2025. He uses the FEIE to exclude the entire amount from US income tax, so his US income tax drops to $0. However, he still owes self-employment tax:

$75,000 × 92.35% × 15.3% = $10,600

Even with no income tax liability, Michael must pay over $10,000 in self-employment tax.

Totalization Agreements

Self-employed Americans abroad often face a significant challenge: paying into both the US Social Security system and their host country’s system. To solve this, the US has signed Totalization Agreements, also known as Social Security Agreements, with more than 30 countries worldwide.

These agreements make sure you only contribute to one system at a time, depending on the length and nature of your assignment. They also let you combine work credits earned in both countries, so that years spent working abroad still count toward qualifying for retirement or disability benefits. Without this coordination, many expats could fall short of the credits needed to collect benefits later.

If the US doesn’t have a Totalization Agreement with your host country, you may need to contribute to both the US Social Security system and the local system at the same time. This can significantly increase your tax burden, so it’s important to plan ahead.

For a complete and up-to-date list of countries the United States has Totalization (Social Security) Agreements with, visit the SSA’s International Programs overview page.

Example: David, a US freelance consultant, moves to France and registers as self-employed there. Because the US and France have a Totalization Agreement, he only contributes to the French system and does not owe US self-employment tax. If he returns to the US, he can combine the Social Security credits he earned in France with his US credits to qualify for benefits. If David stays in France long term, he can also combine his US credits with his French contributions to help qualify for local benefits.

Filing US Self-Employed Taxes

If you’re self-employed abroad, the filing threshold is very low, you must file a US tax return if your net earnings from self-employment are at least $400 in a year. You report this income on Form 1040, along with Schedule C (to show your business profit or loss) and Schedule SE (to calculate your self-employment tax).

Business Structures & Extra Filing for Self-Employed Expats

How you set up your business can change your filing obligations:

• Sole proprietorship → straightforward, reported on Schedule C.
• US LLC → liability protection, but often still taxed like a sole proprietor.
• Foreign corporation → requires Form 5471.
• Foreign Partnership → requires Form 8865.

These forms can be complex and carry steep penalties if missed, so make sure you understand your requirements. For more details, see our Small Business Guide for Americans Abroad.

Self-Employment & Estimated Tax Payments

Unlike employees in the US who have taxes withheld from each paycheck, self-employed expats must set aside and pay their own taxes. To avoid a large tax bill, and possible underpayment penalties, the IRS expects you to make estimated payments throughout the year.

Generally, if you’ll owe $1,000 or more in tax for the year, you should make quarterly estimated payments. You calculate your estimated taxes using Form 1040-ES, which includes worksheets to help you figure out how much to pay. Payments are generally due four times a year: April 15, June 15, September 15, and January 15 of the following year.

Staying on top of these deadlines is essential, since missing or underpaying your estimated taxes can lead to interest charges and penalties.

Strategies to Reduce Self-Employment Tax

You reduce self-employment tax by lowering your net earnings, since the IRS calculates the tax on profit after expenses. This means carefully tracking and deducting all legitimate business costs, such as travel for client meetings, supplies, software, or professional services, can make a significant difference.

Another option is the Section 179 deduction, which allows you to deduct the full cost of qualifying business equipment or assets in the year of purchase instead of depreciating them over time.

Common Deductions for Self-Employed Expats

You lower your net profit and self-employment tax by claiming every deduction you’re entitled to. Here are some of the most common ones that expats use:

Expense Type	How It Can Be Deducted
Home office	If you work from home, you can deduct a portion of rent, utilities, and maintenance costs based on the percentage of your home used for business.
Equipment & assets	Business laptops, phones, and other equipment may qualify for the Section 179 deduction, letting you deduct the full cost in the year of purchase.
Advertising & marketing	Costs for promoting your business — like website hosting, online ads, or business cards — are generally deductible.
Travel & vehicle use	Business trips, airfare, and mileage (using the IRS standard rate or actual costs) can reduce taxable income.
Insurance	Business-related insurance premiums, including liability or professional indemnity coverage, are usually deductible.
Legal & professional fees	Expenses for accountants, tax software, or business-related legal advice can also be written off.

Example: Sophie, a US expat living in Lisbon, runs an online coaching business. She deducts part of her apartment rent as a home office, writes off her laptop under Section 179, and claims airfare for a business trip to Berlin where she met clients. These deductions lower both her income tax and the base used to calculate self-employment tax.

Benefits of Paying Self-Employment Tax

While no one enjoys paying extra taxes, self-employment tax does come with an important upside: it builds your eligibility for US Social Security benefits later in life.

According to the Social Security Administrationin 2025 you earn one credit for every $1,810 of net earnings, up to four credits per year. Once you’ve earned 40 credits (about 10 years of work), you qualify for retirement benefits.

If you earn $7,240 or more in a year, you’ll receive the maximum four credits. Even if you earn less, you still get partial credits, and the credits you accumulate stay on your record for life.

The good news: Social Security pays benefits to Americans living in most countries abroad. That means the self-employment taxes you pay while overseas can still support your retirement. ****

Stay Ahead of Your Self-Employment Tax Obligations

Self-employment tax can easily catch expats off guard. With a filing threshold as low as $400 in net earnings, many Americans abroad don’t realize they must file until they’re facing unexpected bills or penalties. On top of that, missing required forms or quarterly estimated payments can quickly lead to steep penalties, and interest. Knowing your obligations up front is the best way to stay compliant and avoid costly surprises.

If you’ve fallen behind, the IRS Streamlined Filing Compliance Procedures let you catch up penalty-free by filing 3 years of tax returns and 6 years of FBARs.

With MyExpatTaxes, you’ll know exactly what your filing obligations are, no guesswork. We guide you step by step, help you take advantage of expat tax benefits, and support Streamlined Filing if you need to get caught up. We’ll also help you identify deductions and plan estimated payments, so you can stay compliant without overpaying.

Filing your expat self-employment taxes doesn’t have to be stressful, we make it clear, straightforward, and manageable so you can stay compliant and confident in your filing.

Frequently Asked Questions