Do Overseas Contractors Pay Taxes? A Guide for Expats
- Do Overseas Contractors Pay US Taxes?
- How Self-Employment Tax Works for Expats
- Do Expats Have to Pay Self-Employment Tax?
- Tax Deductions for Freelancers Abroad
- Do I Need to File FBAR or FATCA?
- Tax Exclusions & Credits for Expats
- Common Mistakes Freelancers Make
- FAQs: Freelancers & US Taxes Abroad
- Still Have Questions About US Taxes for Independent Contractors Overseas? We Can Help!
Working as a freelancer or independent contractor can provide the freedom and autonomy many expats crave. But what are US taxes like for contractors overseas? Let’s find out.
Key Takeaways
- Freelancers and Independent contractors must file a US tax return even when working overseas.
- The IRS provides a variety of tax benefits for Americans living abroad.
- Using these expat tax benefits; many overseas contractors can reduce their US tax bill significantly.
Do Overseas Contractors Pay US Taxes?
Yes, and here’s why. The US has a citizenship-based tax system, meaning all US citizens and green card holders have to file a US tax return — even if they live and work abroad. This applies to freelancers and independent contractors earning self-employment income overseas. If your self-employment income is $400 or more in a given year, you must report it to the IRS.
Key Tax Forms You’ll Need
When filing your overseas tax return, you’ll need several US tax forms:
- Form 1040: This is your standard US tax return.
- Schedule C: This form is used to report your self-employment income and deductions.
- Schedule SE: This form helps calculate your self-employment tax (15.3%)
How Self-Employment Tax Works for Expats
Freelancers and independent contractors must pay self-employment tax, which covers Social Security and Medicare contributions. Unlike regular employees, who share the cost with their employer (and have these taxes automatically withheld), self-employed individuals must pay the full amount themselves.
Self-Employment Tax Breakdown
The self-employment tax rate is 15.3% of your net self-employment income. That breaks down like this:
- 12.4% for Social Security
- 2.9% for Medicare
You pay both parts as a single tax. Whether or not you are self-employed, when your income exceeds certain thresholds, you’ll owe an additional Medicare tax of 0.9% on any income above your limit. The thresholds for this additional tax are:
- $200,000 (single filers)
- $250,000 (married, filing jointly)
- $125,000 (married, filing separately)
Dreading the last minute scramble pulling together your tax documents? Despair no more! This simple checklist lists the documents you need to have on hand when preparing to file.
Do Expats Have to Pay Self-Employment Tax?
Yes. Living abroad does not exempt you from self-employment tax. This is true even if:
- You qualify for certain expat tax exemptions or deductions
- You pay income taxes to another country
- You don’t owe any US income tax
You may live in a country that also imposes its own version of Social Security and Medicare taxes. In some cases, this means you could be required to contribute to both the US and foreign systems. However, the US has Totalization Agreements with many countries to prevent this kind of double taxation.
These agreements allow you to pay into only one country’s social security system, depending on your specific circumstances. Each agreement is different, so it’s important to understand how the rules apply to your situation. One of our tax professionals can help you determine whether a Totalization Agreement applies to you and how to make the necessary election.
Another way to potentially reduce your self-employment tax liability is by electing to be treated as an S Corporation for federal tax purposes. This more advanced strategy involves paying yourself a reasonable salary and filing a separate corporate return each year. In the right circumstances, it can significantly lower your overall tax bill. Our team can help assess whether this option is a good fit for you.
However, while you can’t avoid self-employment tax, you may be able to reduce your total tax bill using certain expat tax benefits.
Tax Deductions for Freelancers Abroad
If you’re self-employed, you can deduct many common business expenses to lower your taxable income.
| Expense | Deductible If… |
| Home office | Used exclusively for business |
| Internet & phone bills | Portion related to work |
| Travel expenses | Flights, lodging for work trips |
| Health insurance | Deductible for self-employed expats |
| Business supplies & software | Laptops, subscriptions, work-related tools |
| Foreign bank fees | Transaction fees on business income |
Keep detailed records of your expenses — receipts, invoices, and bank statements — to maximize deductions and avoid IRS audits.
Do I Need to File FBAR or FATCA?
If you have foreign financial accounts or assets, you may have additional US reporting requirements under FBAR and FATCA. These rules exist to ensure Americans disclose assets held outside the US, even if no taxes are owed.
FBAR (Foreign Bank Account Report)
The FBAR is required if the total combined value of your foreign bank accounts exceeds $10,000 at any point during the year. Even if no single account exceeds $10,000, you still must file FBAR if the total balance across multiple accounts crosses that threshold.
FATCA (Foreign Account Tax Compliance Act)
The FATCA requirement applies to US citizens with foreign financial assets above a certain threshold:
- $200,000 for single filers living abroad
- $400,000 for married joint filers living abroad
What counts as a foreign financial asset?
- Foreign bank and brokerage accounts
- Foreign pension and retirement accounts
- Foreign mutual funds and stockholdings
- Certain foreign life insurance policies with cash value
Tax Exclusions & Credits for Expats
If you’re a freelancer or independent contractor living abroad, you may be able to reduce or even eliminate your US tax liability by using expat-specific tax benefits. These include the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC).
Common Exclusions & Credits for Expats
| Tax Benefit | How It Works | Best For |
| Foreign Earned Income Exclusion (FEIE) | Excludes up to $130,000 of foreign income from US taxation (2025) | Expats in low-tax countries |
| Foreign Tax Credit (FTC) | dollar-for-dollar credit for foreign taxes paid to offset your US tax liability | Expats in high-tax countries |
| Totalization Agreements | Prevents expats from paying Social Security tax twice | Expats in countries with valid agreements |
If you live in a country with high tax rates, the Foreign Tax Credit (FTC) may be a better option than the FEIE. This credit allows you to reduce your US tax bill dollar-for-dollar based on the income taxes you paid to a foreign country.
Common Mistakes Freelancers Make
Filing taxes as a freelancer overseas can be confusing, and many expats unknowingly make mistakes that lead to penalties, unnecessary tax bills, or IRS audits. Here are some of the most common pitfalls.
1. Not Paying Quarterly Estimated Taxes
Unlike employees, freelancers don’t have taxes withheld from their income automatically. If you expect to owe $1,000 or more in US taxes, the IRS wants you to make estimated quarterly tax payments. Failure to pay on time can result in penalties and interest charges.
2. Missing FBAR or FATCA Deadlines
Failing to file FBAR or FATCA reports when required can result in severe penalties.
- Failing to file an FBAR can result in fines of up to $10,000 per violation for non-willful cases and much higher penalties for willful violations.
- Failure to file Form 8938 can result in a $10,000 penalty, increasing to $50,000 for prolonged non-compliance.
Make sure you know whether you need to file either or both of these forms — and if you do, don’t skip them!
3. Claiming the Foreign Earned Income Exclusion (FEIE) Incorrectly
The FEIE is one of the best tax benefits available to freelancers abroad, but claiming it incorrectly can trigger an IRS audit. To qualify, you must meet one of two residency tests:
- Physical Presence Test: You must spend at least 330 full days outside the US in a 12-month period.
- Bona Fide Residence Test: You must prove that you’ve established a permanent residence in a foreign country and intend to stay indefinitely.
Record your time abroad carefully to be sure you’re eligible for the FEIE before claiming it.
4. Assuming You Don’t Need to File a US Tax Return
Many expat freelancers believe that if they don’t owe taxes, they don’t need to file a tax return. That’s not true. All US citizens and green card holders must file a tax return if their income exceeds the filing threshold, even if they live abroad.
FAQs: Freelancers & US Taxes Abroad
Can I Avoid US Taxes If I Live Abroad?
No. The US taxes all citizens and green card holders on worldwide income, regardless of where they live. Even if you never return to the US, you are still required to file a tax return if you meet the minimum income threshold.
Can I Contribute to a US Retirement Account While Freelancing Overseas?
Yes, but your ability to contribute depends on how much earned income you report on your US tax return.
- Traditional IRA: You can contribute up to $7,000 in 2025 ($8,000 if age 50+) as long as you have enough earned income. If you exclude all your earned income using the FEIE, you cannot make a contribution.
- Roth IRA: Contributions are based on modified adjusted gross income (MAGI)—using the FEIE may disqualify you from contributing.
- Solo 401(k) or SEP IRA: As a freelancer, you can set up your own retirement plan and contribute much more than a regular IRA.
If you exclude all your income using the FEIE, you may not be able to contribute to any retirement plans. Speak with a tax professional to make sure you can make a retirement plan contribution without incurring an excess contribution penalty. This penalty can be substantial. Instead, consider using the Foreign Tax Credit (FTC) to keep your taxable earned income high enough to qualify to make contributions.
How Can I Avoid Double Taxation?
The FTC and FEIE are designed to prevent double taxation. Choosing between FEIE and FTC depends on your specific tax situation. A tax expert can help you decide which option saves you more.
Still Have Questions About US Taxes for Independent Contractors Overseas? We Can Help!
At Greenback Expat Tax Services, we help Americans around the world manage their US tax obligations. Our team of expat-expert CPAs and IRS Enrolled Agents is standing by to answer your questions about US Taxes for Freelancers & Independent Contractors Working Abroad.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.
