I’m self-employed & owe tax. Can’t my income be excluded via FEIE?
Let's say you're a sole proprietor of a business and you receive only $1,000 in net income you deduct business expenses. Do you still owe tax? Or can all of your income be excluded via the Foreign Earned Income Exclusion?
You do not owe income tax, that’s 100% correct.
However, you do owe Self-Employment tax on any income above $400. If you were employed, your employer would have paid half of the tax and withheld another half from your paycheck--that's known as Payroll Tax. As a self-employed individual, you are responsible for the entire amount of Social Security and Medicare tax. This tax cannot be reduced by the Foreign Earned Income Exclusion or by any other credits or deductions.