As a U.S. citizen or resident, if you have a business outside of the United States, you are generally liable to pay U.S. self-employment tax, which includes Social Security and Medicare taxes. This tax applies whether you live and work abroad or in the United States. You are required to pay the self-employment tax if your net earnings from self-employment are $400 or more.
The self-employment tax rate is 15.3%, which consists of two parts: 12.4% for Social Security and 2.9% for Medicare.
However, the United States has entered into social security agreements, known as Totalization Agreements, with several foreign countries. These agreements coordinate social security coverage and taxation for people who work internationally. Under a Totalization Agreement, if you are working in a country with which the U.S. has an agreement, and you are paying social security taxes to that foreign country, you may be exempt from paying self-employment tax to the U.S. on the same earnings. This helps avoid double taxation on the same income.
To claim an exemption under a Totalization Agreement, you typically need to obtain a certificate of coverage from the foreign country's social security agency, proving that you are paying social security taxes in that country. This certificate should be kept as part of your tax records.
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