# Self Employment Tax



## Pinar

I have a dual citizenship and have been residing in Turkey for 4 years. For the past couple of months I've been doing freelance work for a US based company and I earned a total of $5100 from that company but $5100 is also the total income I had since last year. I haven't filled out a W-9 and they haven't sent me 1099-MISC which is a form independent contractors need to fill out in the US. I read somewhere that expats with an income level lower than $9000 don't have to file a tax return. The self employment tax rate is 15.3% and is not reduced by the foreign earned income exclusion or foreign tax credits and I really don't want to pay %15.3 for the little income I earned. Do I have to file a tax return?


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## Bevdeforges

It depends on your filing status. If you're married to an NRA, the filing threshold is $3900 and so, yes, you'd have to file. If you're single, the filing threshold is $10,000, so no, you wouldn't have to file if that is the only income you had last year.

Now, if you want the credit for working last year in your social security record, you may want to voluntarily file in order to make the unemployment tax payment. 

If they didn't send you the 1099-MISC that's their problem. But if your total worldwide income for 2013 is below your filing threshold, I'd just not file and be done with it.
Cheers,
Bev


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## BBCWatcher

Yes. According to IRS Publication 501, you are required to file.

Please be aware that the U.S. company paying you will very likely need to file a record of your compensation with the IRS, so you will be on their radar.

The bit of good news is that $5100 in self-employment Social Security taxable income will give you a full 4 quarter credits (1 full year). If you've already qualified for U.S. Social Security retirement benefits, your future monthly benefit will likely be increased with this additional contribution. If you haven't already qualified, this $5100 year will count as a full year toward the 40 credits you need to qualify for retirement benefits. These 4 credits may also qualify you (or continue your qualification for) disability coverage.

Another bit of (possible) good news is that you may qualify for one or more refundable tax credits. If your total gross income is $5100 you will not owe any personal income tax, but you may be entitled to a refundable tax credit depending on your filing status and situation.

You can make a U.S. IRA contribution up to $5100 (your earned income total) if you wish, assuming that's your only earned income for the year. (But do not take the Foreign Earned Income Exclusion. It's unnecessary at that income level anyway.)

Finally, if Turkey has a personal income tax you may owe tax in Turkey. If so, you can receive a U.S. Foreign Tax Credit which can be "banked" and used to offset future U.S. income taxes, if any.

On edit: Bev, the filing threshold for self-employment tax is zero. According to Publication 501, Pinar must file. Sorry about that.


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## Pinar

Yes I found that if a self employed person makes more than $400 she/he has to file:

"U.S. Self Employment Tax

If you are a bonafide employee of your foreign employer (which can mean your own foreign corporation) and have foreign social security and other payroll taxes withheld from your wages, and you are considered an employee under local foreign law, you do not have to worry about paying any social security taxes to the U.S. The IRS then considers you a foreign employee. However, if you are self employed by contract, and no foreign social security or other payroll taxes are being withheld from your earnings ( in other words an independent contractor) you must file a Schedule C with your U.S. tax return and pay U.S. self employment tax (social security taxes by the self employed) on your net earnings ( after deducting your expenses). The self employment tax rate is 15.3% and is not reduced by the previously mentioned foreign earned income exclusion or foreign tax credits.
An exception to paying social security on your foreign self employment income occurs if you reside in a country which has a social security agreement with the US. In that event you can elect to have your earnings covered by the foreign country's social security (only if they have a social security agreement with the US), and not have to pay US self employment tax (social security)"

So I'll have to file but the tax year ends in 31 of December and I made slightly below $2000 until that date so I'll write $2000 as my earning. I'm not sure the US company will send me any forms, they said they will talk to their accountant. I'll report my income though.

"If your total gross income is $5100 you will not owe any personal income tax"
I don't pay any personal income tax in Turkey. I don't have any overhead and very minimal business expenses so that $5100 will likely end up as a profit but if that is the only income I have can I still avoid paying anything?


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## BBCWatcher

If you had $2000 in self employment income in tax year 2013 then you owe about $306 (15.3%) in self-employment taxes. That'll count as 1 credit quarter for U.S. Social Security qualification purposes. If that $2000 is your only income for the year (worldwide) then you won't owe U.S. personal income tax.

You may qualify for one or more refundable U.S. tax credits depending on your filing status and other factors that may, after factoring the self-employment tax, result in receiving money from the IRS. Refundable tax credits include the Earned Income Tax Credit and Additional Child Tax Credit, as notable examples. Check to see if you qualify.


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## Pinar

Thanks for the response. I have two more questions. Will I be filing a Schedule C along with 1040? Do I file any foreign income exclusion form since I live abroad?


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## Bevdeforges

Pinar said:


> Yes I found that if a self employed person makes more than $400 she/he has to file:
> 
> "U.S. Self Employment Tax
> 
> If you are a bonafide employee of your foreign employer (which can mean your own foreign corporation) and have foreign social security and other payroll taxes withheld from your wages, and you are considered an employee under local foreign law, you do not have to worry about paying any social security taxes to the U.S. The IRS then considers you a foreign employee. However, if you are self employed by contract, and no foreign social security or other payroll taxes are being withheld from your earnings ( in other words an independent contractor) you must file a Schedule C with your U.S. tax return and pay U.S. self employment tax (social security taxes by the self employed) on your net earnings ( after deducting your expenses). The self employment tax rate is 15.3% and is not reduced by the previously mentioned foreign earned income exclusion or foreign tax credits.
> An exception to paying social security on your foreign self employment income occurs if you reside in a country which has a social security agreement with the US. In that event you can elect to have your earnings covered by the foreign country's social security (only if they have a social security agreement with the US), and not have to pay US self employment tax (social security)"
> 
> So I'll have to file but the tax year ends in 31 of December and I made slightly below $2000 until that date so I'll write $2000 as my earning. I'm not sure the US company will send me any forms, they said they will talk to their accountant. I'll report my income though.
> 
> "If your total gross income is $5100 you will not owe any personal income tax"
> I don't pay any personal income tax in Turkey. I don't have any overhead and very minimal business expenses so that $5100 will likely end up as a profit but if that is the only income I have can I still avoid paying anything?


Wait a minute, something doesn't compute. If you only made something less than $2000 to 31 December, but you say your total gross income is $5100, what is the time period the $5100 refers to? (I.e., does it span two tax years?)

In any event, I would wait until I get my 1099-MISC from your client/employer so that you file based on what they have reported to the IRS. Filing from overseas, you have an extra two months to file (it's considered an automatic extension). And I know I haven't gotten my 1099s yet from my US bank. (I filed anyhow, since I got the information off my Internet access.)

If only $2000 relates to 2013, and they report the remaining $3100 for 2014 that will affect the social security credits you "earn" for the year as well as possibly complicating your return for next year, particularly if you're hoping to contribute to an IRA.

But just a note on opening an IRA if you don't already have one. It may be difficult to open one from overseas, and to be deductible the contribution for the year must be made by the filing deadline (not including any extensions). That means April 15th 2014, which is coming right up.
Cheers,
Bev


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## Bevdeforges

Pinar said:


> Thanks for the response. I have two more questions. Will I be filing a Schedule C along with 1040? Do I file any foreign income exclusion form since I live abroad?


You can file a Schedule C if you have any expenses/deductions to report against your earnings. But if you have nothing to deduct, you don't have to file the Schedule C. Just declare the amount you were paid.

The FEIE form (2555) is an election. You don't have to file one if you don't need or want to take the election (which it sounds like you don't need to).
Cheers,
Bev


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## Pinar

Well I have some expenses for example I purchased a board and a chair for business purposes but the receipts are in Turkish. I also paid student loans and interest on student loans but I'm not sure if they count as a deduction..


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## DavidMcKeegan

You can deduct the business expenses on Schedule C then. It does not matter if the receipts are in Turkish, as you don't have to include them with the return (however you should keep them in case the IRS questions it)....Just report the amounts as normal.

The interest you paid on your student loans can also be deducted. Just let your accountant know and they can fill out the appropriate forms for you.


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## Pinar

It is me again. I chose to write over here instead of creating a new thread. The person I worked as a contractor for hasn't sent me a 1099-MISC (the deadline to send a 1099-MISC is January and he said he would get a penalty if he sent it now. He also said he had no idea he had to give out 1099-MISC since no other people who work for him requested the form!? Sounds really dodgy to me. Anyway. Should I just report the income without the 1099? I'd also like to mention that in 2013 I was a subcontractor and he sent the payment to his contractor who lives in Turkey and this contractor paid me (though as of 2014 he paid me directly).


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## Bevdeforges

Perhaps he should have sent the 1099-MISC to the Turkish contractor. That's not really your problem. Report the income without the 1099 and you've done your duty.
Cheers,
Bev


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## Pinar

Thank you Bev.


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