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Why is my w2 income exempt as foreign income and not my 1099 income?

Forum|Forum|6 years ago
April 2, 2020
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Best answer by KarenJ2

Unfortunately, when your employer switched you from employee to independent contractor, you became responsible for SECA (self-employed workers payment of both the employer and employee portion of FICA which is 12.4% of your net self-employment income).

Foreign earned income exclusion is a reduction in regular income tax but not from SECA.. Foreign tax credit cannot offset SECA.

You need to first enter your self-employment income and expenses in the self-employment section of TurboTax. After that you enter your self-employment income before expenses in the foreign earned income exclusion section of TurboTax, completing all the screens.

satoveillonAuthor

To clarify, last year 100% of my income was a W2 from my one employer. Because I lived overseas all year and pay tax in that foreign country, my tax liability in the US was zero, and I got all of the tax my employer deducted back. In March of 2019 my employer switched me to 1099 (contract employee), so this year filing taxes I have both a W2 for the first few months and 1099 for the rest of the year. Otherwise, nothing has changed. Yet TurboTax suggests I have to pay over $9k in tax. I don't think this should be the case. I should get back the tax that was taken out on the W2, like last year, and that's it. No tax was taken out on the 1099, but since I don't owe US tax, that should be fine, I just don't get anything back on the 1099. I know this is based on logic and not tax law (partly), but I don't see a reason why it shouldn't be that way. Someone please enlighten me to why this is correct, or how to fix TurboTax so that my tax obligation is what I expect.

K

KarenJ2Answer

Unfortunately, when your employer switched you from employee to independent contractor, you became responsible for SECA (self-employed workers payment of both the employer and employee portion of FICA which is 12.4% of your net self-employment income).

Foreign earned income exclusion is a reduction in regular income tax but not from SECA.. Foreign tax credit cannot offset SECA.

You need to first enter your self-employment income and expenses in the self-employment section of TurboTax. After that you enter your self-employment income before expenses in the foreign earned income exclusion section of TurboTax, completing all the screens.

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