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I'm a self-employed U.S. citizen living in Italy. According to http://www.expattaxprofessionals.com/wp-content/uploads/pdf/Tax-Handbook-Understanding-the-US-Tax-Basics.pdf, the rules for paying self-employment tax are generally the same as for U.S. residents. However,

In order to avoid paying self-employment taxes in both the U.S. and the foreign country, U.S. expats may be able to rely on a social security totalization agreement between the U.S. and the foreign country.

According to U.S.-Italy tax treaty (https://www.irs.gov/pub/irs-trty/italy.pdf), article 14:

ARTICLE 14

Independent Personal Services

  1. Income derived by an individual who is a resident of a Contracting State from the performance of personal services in an independent capacity shall be taxable only in that State unless such services are performed in the other Contracting State and a) the individual has a fixed base regularly available to him in that other State for the purpose of performing his activities, but only so much of the income as is attributable to that fixed base may be taxed in that other State; or b) the individual is present in that other State for a period or periods aggregating more than 183 days in the fiscal year concerned.

  2. The term "personal services in an independent capacity" includes, but is not limited to, scientific, literary, artistic, educational, and teaching activities as well as independent activities of physicians, lawyers, engineers, architects, dentists, and accountants.

In other words, it seems like my self-employment income should be taxable only in Italy.

What it not yet clear to me is how to fill out my tax forms accordingly. As a self-employed individual I have to fill out Schedule C and Schedule SE, which leads to self-employment tax with no clear way to deduct it.

How can I make my self-employment tax zero (e.g. using foreign tax credit)?

Kurt Peek
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@KurtPeek Article 14 of the treaty deals with personal income taxes, not selfemployment and welfare, which is unfortunately subject to double taxation if there is no totalization agreement between the countries. Luckily there is one dated back 1949, so you should be able to elect your entity (INPS or SSA) via the form dave_thompson_85 pointed to. For self-employed you can actually choose whether you like (and if I was you being a US citizen I would choose SSA since INPS is not doing well here in Italy). A different word is to be mentioned if you must pay social security in Italy to a specific entity (private) because you are a licensed professional (like an engineer/doctor/lawyer) who subscribed the national/provincial board of his profession in order to be able to perform his services (i.e. Ordine professionale). In that case, you can't pay social security to INPS, but to a different entity (one for each type of profession). Hence in this case there is no agreement (because these entities are not referring to INPS and not specifically mentioned in the totalization agreement IT-US).

Marco Lo Monaco
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