Opt-out of paying Social Security Employment Taxes
Don’t forget about employment taxes.
An irritating reality for self-employed Americans—and those who work for their own US corporation—is that they face a higher effective tax rate due to the double payment of employment taxes.
Why are self-employment taxes so high?
Self-employment taxes are high because when you’re self-employed—or working for your own US corporation—you must pay both the employee and employer portions of Social Security employment taxes. For example, if your yearly business profits are $100,000, your self-employment taxes cost you $15,000 each year—not counting your income taxes.
Fortunately, working expats living abroad have the unique ability to opt-out of paying self-employment taxes. We will show you how to do it.
We assist our clients in eliminating income taxes (federal, state, and local), but to be completely tax-free, we also assist our clients in opting out of self-employment taxes successfully. You see, income taxes are different from employment taxes.
To opt out of self-employment taxes requires careful analysis so you don’t shortchange yourself in the long run. The decision is based on your own set of facts and circumstances–so we analyze your prior contributions and future Social Security benefits. Our ‘ExpatMax’ analysis allows you to make an informed (and beneficial) decision.
What is the Foreign Employer Tax Break?
The actual tax break we use to eliminate employment taxes is called the “Foreign Employer Tax Break,” which requires your geolocational place of employment to be outside of the USA. You must also work for a non-US employer.
This optional tax break saves you substantially more. For most people, the Foreign Employer Tax-Break works out to tremendous additional savings every year:
• $ 9,000 saved when earning: $ 60,000
• $15,000 saved when earning: $100,000
• $21,000 saved when earning: $140,000
For self-employed clients, this means you'll first need to form and work for your own foreign corporation. Note: For those living outside of the USA, a foreign corporation has many beneficial non-tax business purposes.
Is Opting Out of Self-Employment Taxes a Good Idea?
The short answer is that it depends on how much you’ve already contributed to the Social Security trust fund. Understand that a detailed analysis is required to take this step safely. Social Security ‘employment taxes’ are one tax that can affect your future retirement benefits.
But for many individuals who have already paid enough into the system, contributing more money does not substantially increase their future Social Security benefits.
Instead, they can save up to $21,000 yearly by opting out of paying more employment taxes, with virtually no loss of advantages in the future.
You can then redirect those funds to your own IRA or 401k going forward and, for example, helping other people.
Remember: opting out of self-employment taxes takes careful planning. You’ll need to ensure that it’s a good strategy based on your particular situation. Therefore, seek further consultation into your case before committing to this strategy.
How do I decide on using the Foreign Employer Tax Break?
Let Tax-Free.org’s ExpatMax™ software analyze your specific Social Security position, prior payment history, as well as future benefits. The ExpatMax™ analysis ensures that you don’t shortchange yourself in the long run, as Social Security ‘employment taxes’ are one tax that can have future retirement benefits.
Though, as we have already mentioned, many self-employed expats have already paid enough into the system, so they can safely opt out of self-employment taxes with virtually no loss of benefits in the future. Visit LiveTaxFree.com/expatmax, and we’ll show you how to make an ‘informed’ choice. This way, you can plan and execute this strategy with confidence—no guesswork here!
Book a 30 minute consultation to start your ExpatMax™ review here
You’ll want to keep the paperwork and cost of running your foreign corporation low so that you can retain the highest amount of your employment tax savings. So, we’ll show you ways to keep the costs on your foreign company down—and importantly—how to keep the required paperwork forms down to a minimum.