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I am self-employed and all of my income is excluded under the Foreign Earned Income Exclusion. Why does my return show a balance due?

Self-employed taxpayers must pay self-employment tax on their net business income based on the IRS’ current rates, unless you are in a country with a Totalization Agreement. For 2017, the Social Security tax rate is 6.2 percent of the first $127,000 you earn during the year. If you’re self-employed, this means you must pay a 12.4 percent Social Security tax (consisting of payments both as an employee and employer). The Medicare tax rate for 2017 is 1.45 percent, so self-employed taxpayers must pay a 2.9 percent tax. This tax applies to all of the income you earn during the year. You will need to pay estimated self-employment taxes on a quarterly basis to avoid interest and penalties.


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Updated: June 2, 2018

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