# Sole trader with self employment tax and general confusion



## BTWest (Jun 1, 2019)

Spouse has been in the UK ten years plus and pays taxes and national insurance on his very small sole trader business to HMRC. Because of the foreign earned income exclusion and the UK Tot Agreement there's never been anything due to pay to the IRS. We notice now however that due to the tax reform and changes to the paperwork involved that even if the tax due comes out at zero he'll still need to pay self employment tax even though he pays national insurance here? It 'could' be that we've simply downloaded the wrong forms so if anyone here is in a similar situation we'd be grateful for any advice. Thank you.


----------



## Nononymous (Jul 12, 2011)

Would be helpful to give a few more details, such as nationalities and countries of current and previous residence etc. I am inferring that the person in question is a US citizen living in the UK, married to a UK citizen, who may or may not be a dual citizen, and who has been filing US tax returns.

I think it's also likely that he can avoid the self-employment tax due to paying the UK equivalent, but someone who knows better should confirm.


----------



## Bevdeforges (Nov 16, 2007)

The UK has a social security treaty with the US. As long as your spouse is paying into the UK social insurance system as a self-employed individual, he should NOT have to pay US "self-employment tax" (which is nothing but US social security - both employer and employee parts).

Technically, he should request a certificate (or statement) of coverage in the UK system. Some folks send it in with their tax returns, but I know many who don't bother and have never been questioned by the IRS.


----------



## BTWest (Jun 1, 2019)

In the past my spouse simply claimed the foreign earned income exclusion and wrote exempt UK US Tot Agreement on a particular line...can't remember which off hand...and it was never questioned. I'm still thinking that we might have simply downloaded the wrong forms and am panicking because 15 June is just around the corner and we're still none the wiser as to which forms he needs to submit. (We used as a guide a list we found on another website and did notice that they appear to be geared more to employees as opposed to the self employed with no other source of income).


----------



## BTWest (Jun 1, 2019)

Correct, he's American (no dual nationality) I'm British and have never lived in the States or been included on his returns so I basically don't exist for US tax purposes


----------



## Bevdeforges (Nov 16, 2007)

The new 1040 has thrown lots of folks for a loop.

Depends on how he reports his income. If he goes the whole Schedule C route (i.e. detailing revenue, expenses and all) and files electronically, some systems have been automatically assuming that the person has to pay self-employment tax. If he's filing on paper, the only change should be the 1040 form (and it's many "schedules"). 

If his revenue before taking expenses is less than the FEIE amount, he could potentially just exclude it all without bothering to file a Schedule C.


----------



## underation (Oct 25, 2018)

BTWest said:


> Spouse has been in the UK ten years plus and pays taxes and national insurance on his very small sole trader business to HMRC. Because of the foreign earned income exclusion and the UK Tot Agreement there's never been anything due to pay to the IRS. We notice now however that due to the tax reform and changes to the paperwork involved that even if the tax due comes out at zero he'll still need to pay self employment tax even though he pays national insurance here? It 'could' be that we've simply downloaded the wrong forms so if anyone here is in a similar situation we'd be grateful for any advice. Thank you.


What’s the status of the small business with regard to the TCJA tax hits (transition tax, GILTI, etc)? Is your spouse unaffected? That would be good.


----------

