Self-employment tax abroad: why the FEIE does not reduce it

What this covers

Self-employment tax is the Social Security and Medicare tax that people who work for themselves pay on their net earnings, figured on Schedule SE. The IRS gives the rate as 15.3%, made up of 12.4% for social security and 2.9% for Medicare. It is separate from income tax, so tools that reduce income tax, such as the foreign earned income exclusion, do not automatically reduce it.

Start from the rule that self-employment tax follows you abroad

Publication 54 says the rules for paying self-employment tax are generally the same for a self-employed US citizen or resident whether they live in the United States or abroad. You must pay it if net earnings from self-employment are at least $400, and that same $400 level brings a duty to file a return. See US citizens abroad for the wider filing picture.

The IRS self-employment tax page sets out how the tax is built. For 2026, the first $184,500 of combined wages, tips and net earnings is subject to the 12.4% social security part. All net earnings are subject to the 2.9% Medicare part, and an Additional Medicare Tax of 0.9% applies above thresholds set by filing status, such as $200,000 for single filers and $250,000 for married filing jointly.

Understand why the foreign earned income exclusion does not reduce it

The foreign earned income exclusion removes qualifying income from income tax. Publication 54 says you must still take all of your self-employment income into account in figuring net earnings from self-employment, even income that is exempt from income tax because of the exclusion. The Schedule SE instructions say the same: foreign self-employment earnings cannot be reduced by the exclusion when computing self-employment tax.

Fictional example: Maya is a US citizen who designs websites as a sole proprietor while living in a country with no US social security agreement. She meets the physical presence test and excludes her profit from income tax. Her net profit still goes on Schedule SE, so she can owe self-employment tax with little or no income tax. Whether she also owes contributions where she lives depends on that country's own rules.

The choice between the exclusion and the foreign tax credit is covered in FEIE vs foreign tax credit.

Check whether a totalization agreement covers you

A totalization agreement is a social security agreement between the United States and another country. The Social Security Administration says the agreements eliminate dual social security coverage and taxation and assign a worker's coverage to one country's system or the other, but not both.

For the self-employed, Publication 54 says that as a general rule people subject to dual taxation will only be covered by the social security system of the country where they reside. Publication 54 points to the SSA agreement descriptions for how a specific agreement treats self-employed people. For employees, the general rule is coverage where the work is done, with an exception that can keep someone temporarily sent abroad covered only by US social security.

If no agreement applies, the general IRS rule stands: a self-employed citizen or resident abroad in most cases pays US self-employment tax, and the other country applies its own law.

See which countries have an agreement with the United States

The Social Security Administration lists 31 agreements in force in its operations manual, revised September 17, 2026. The IRS list in the Schedule SE instructions names 30 countries and does not yet show Romania, whose agreement the SSA lists as effective September 1, 2026. Check the SSA list for the current position before relying on any table.

Get the right certificate of coverage

A certificate of coverage is the proof of which system covers you. Which document you need depends on the direction of the exemption.

• Covered by the other country, exempt from US tax: the Schedule SE instructions say to get a statement from the foreign agency verifying that your self-employment income is subject to social security there. If the foreign country will not issue one, you can request a statement from the SSA Office of Earnings and International Operations through its online certificate of coverage service.
• Claiming that exemption on the return: the instructions say not to complete Schedule SE, to attach a copy of the statement to Form 1040, 1040-SR or 1040-NR, and on Schedule 2 (Form 1040), line 4, to check box 3 and enter "EAS".
• Covered by the US, exempt from the foreign tax: Publication 54 says to request a certificate of coverage from the SSA Office of Earnings and International Operations, which establishes the exemption from the foreign social security tax.

Note the rule for business income in US territories

Puerto Rico, Guam, the Northern Mariana Islands, American Samoa and the US Virgin Islands are not foreign countries. Publication 54 says a US citizen or resident who owns and operates a business in one of them must pay self-employment tax on net earnings of $400 or more from those sources, whether or not the income is exempt from US income tax. Residents who do not otherwise file Form 1040 use Form 1040-SS. See Puerto Rico bona fide residence.

Keep the records that support your position

Keep a copy of every certificate of coverage, the dates it covers and the agreement it relies on. Keep business records showing where you lived and worked each year, since residence drives coverage for most self-employed people under the agreements. See records to keep.

Common misconceptions

Questions to take to a professional

1. Does my country of residence have a totalization agreement with the United States, and what does it say about self-employed people?
2. Under that agreement, which country covers me given where I live and work?
3. Have I obtained a certificate of coverage or foreign statement, and what period does it cover?
4. If there is no agreement, what contributions does my country of residence charge on the same earnings?
5. How does my business structure affect whether my income counts as self-employment income?
6. Do I need to make estimated payments to cover self-employment tax during the year?

Questions people ask

Sources

• Publication 54 (12/2025), Tax Guide for U.S. Citizens and Resident Aliens AbroadOfficial guidance
• Instructions for Schedule SE (Form 1040) (2026)Official guidance
• Self-employment tax (Social Security and Medicare taxes)Official guidance
• Totalization agreementsOfficial guidance
• SSA POMS GN 01701.005, International Social Security (Totalization) Agreements (09/17/2026)Official guidance