If you choose to employ yourself at your company you are responsible for self-employment taxes.

The self-employment tax rate is 15.3% for the first $128,400 of net income

People who are self-employed have to pay self-employment taxes, which are Social Security and Medicare taxes.

A common misconception among foreigners is that the first roughly $100,000 of income are completely tax free in the US under the Foreign Earned Income Exclusion (FEIE). This is however only partially true. The FEIE lets you exclude income from income tax. It does not get you out of paying self-employment tax on foreign income when working as freelancer, independent contractor or sole proprietor abroad.

Generally, self-employed individuals pay income tax and self-employment tax (SE tax). If they qualify for the FEIE, they can exclude foreign earned income up to $104,100 (2018) from income tax. (Although the FEIE will be pro-rated depending on the business expenses.) But they still have to pay self-employment tax. Being self-employed, you must pay SE tax on your entire net profit, even the amount you can exclude from income tax.

You have to pay self-employment taxes if:

  • Your net earnings are $400 or more.

  • You work for a church or a qualified church-controlled organization that elected an exemption from social security and Medicare taxes, and you make $108.28 or more in wages. This does not apply to ministers or members of a religious order (such as nuns).

If you have employees, you have to pay employment taxes, which include:

  • Social Security and Medicare taxes

  • Federal income tax withholdings (this is technically paid by your employee, but you’re responsible for making sure Uncle Sam gets it)

  • Federal unemployment (FUTA) tax

There are also various excise taxes depending on the type of business. This could be anything from taxes on trucks and impact to the environment or for things like sweepstakes giveaways or winnings from playing daily fantasy sports.


Did this answer your question?