Social Security And Medicare Taxes For Expats

Social Security and Medicare Taxes

Generally Social Security and Medicare Taxes For Services Performed Overseas Don’t Apply

In general, U.S. social security and Medicare taxes do not apply to wages for services you perform as an employee outside the United States unless one of the following exceptions applies.

  1. You perform the services on or in connection with an American vessel or aircraft,
  2. You are working in one of the countries with which the United States has entered into a bilateral social security agreement,
  3. You are working for an American employer,
  4. You are working for a foreign affiliate of an American employer under a voluntary agreement entered into between the American employer and the U.S. Treasury Department.

American employer. It is important to note that if your wages are from what is considered an American employer your income will be subject to social security and Medicare taxes. An American employer includes any of the following.

  • The U.S. Government or any of its entities.
  • An individual who is a resident of the United States, including a sole proprietorship.
  • A partnership of which at least two-thirds of the partners are U.S. residents.
  • A trust of which all the trustees are U.S. residents.
  • A corporation organized under the laws of the United States, any U.S. state, or the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, or American Samoa.
  • A trust of which all the trustees are U.S. residents.

Finally, if you are self-employed and working overseas, you will generally still be subject to U.S. self-employment tax (aka social security and Medicare taxes). This is the case even if you pay no income tax as a result of claiming the foreign earned income exclusion or foreign tax credit.

Example. You are living in London, United Kingdom as a self-employed computer consultant and qualify for the foreign earned income exclusion. Your foreign earned income is $93,000, your business deductions are $13,000, and your net profit is $80,000. You must pay self-employment tax (social security and Medicare taxes) on all of your net profit ($80,000), even though that amount is excluded from income taxes as a result of the foreign earned income exclusion.


 

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