U.S. Social Security, Medicare, and Self-Employment Taxes

If you are an offshore employee of a U.S. corporation, that employer will normally withhold Social Security and Medicare taxes on your W-2 earnings.

If you are working for a U.S.-based employer in one of the 20-plus countries with which the U.S. has established a Social Security Totalization Treaty, you may cite a closer connection to the foreign country and participate in that country’s social insurance system, and not have U.S. Social Security and Medicare taxes withheld from your U.S. pay.

If you are a bonafide employee of a foreign employer and are subject to foreign laws governing their social security tax, you are not required to pay U.S. Social Security tax.

If you are self-employed (an independent contractor), you are obligated to pay, in addition to your income tax, a U.S. Self-Employment tax that is both employer and employee’s share of Social Security and Medicare taxes.

You must file a Schedule C with your U.S. tax return and pay U.S. Self-Employment Tax on your net earnings by filing a Schedule S-E.

The Self-Employment Tax rate is 15.3% of net Schedule C income before any foreign income exclusion and the taxable net self-employment rate is not reduced by the previously mentioned foreign tax credits.

Net earnings are income after all legal business expenses are deducted, and include the income earned both in a foreign country and in the United States.