Self Employment and US Taxes – Double Taxation?
- David Tzimenakis
- 11 minutes ago
- 3 min read
Making sense of the huge amount of articles online discussing the implications of being self-employed in New Zealand as a US citizen, can be difficult at best.
With this in mind, we thought we’d put an article out there explaining the issue, but in the assurance that solutions are available.
At The US Tax Team, we aim to publish US tax articles which are explanatory, easy to understand, and put in human terms.
Lets dive in.
Do I have to pay US Social Security Tax if I am self-employed in New Zealand?
Unfortunately yes, in most cases, self-employment income is subject to social security tax in the United States.
A common misconception is that the Foreign Earned Income Exclusion (ie the $120k threshold) excludes social security tax, but this is not the case.
There are two specific reasons why a US citizen working as a self-employed person in New Zealand would be subject to social security tax, firstly:
1. No totalisation agreement – As it currently stands, there is no totalisation agreement between the United States and New Zealand. A totalisation agreement is an agreement reached between the two governments, which ensures that government retirement benefits are provided to individuals, regardless of which country’s system they paid into.
A) For example, if NZ did have a totalisation agreement with the United States, it would mean you can pay into NZ government superannuation for your working life, then move to the US and collect social security. However, this is not the case currently
B) As New Zealand and the US have no totalisation agreement, it means that social security tax must still be paid to the United States on self-employment income in New Zealand
2. Secondly, in Article 2(1)(a) of the NZ/US DTA (double tax treaty), social security taxes are specifically excluded from the treaty. This means that no form of NZ tax paid, can be used as a tax credit to offset a social security tax bill
So in simple terms, self-employed US citizens in NZ must pay social security tax to the US?
Yes, that’s right.
But, there are solutions, which we’ll discuss further in the article.
Who is subject to US social security tax in New Zealand?
Generally speaking, anybody who is a contractor, sole trader or even those on shareholder salary can be treated as self-employed from a US tax perspective.
However, for those who contract to a single company, whereby their role is similar enough to that of an employee can sometimes be treated as a waged employee for tax purposes, and thus no longer subject to social security tax.
If you are self-employed, and believe that you may qualify to be treated as an employee for tax purposes, it is essential to obtain expert US tax advice to get a qualified US tax opinion.
At The US Tax Team New Zealand, we perform employee/self-employed analysis frequently, and can help.
Are there any other solutions to being double taxed with social security tax?
There are indeed.
Fortunately there are methods to prevent a social security tax liability from existing on your income. This can involve the creation of an NZ Ltd company, however we need to be very careful in this approach to prevent GILTI taxation occurring.
At The US Tax Team, we advise a large number of US citizens each year on tax efficiency for those who are self-employed. Our methods can help prevent double taxation, with clear, understandable advice. In addition, we work closely with most large accounting firms around the country, and can work directly with your NZ accountant (if you have one), to ensure that you’re set up correctly.
