U.S. EXPAT TAX GUIDE – INDIA

What does it mean to be self-employed as a US expat in India?

Being self-employed as a US expat in India means that you work independently without a formal employer. This can include being a freelancer, contractor, or owning a small business.

Get Your Custom Tax Quote

It applies to all “US persons,” including US citizens, dual Indian/US nationals, Green Card holders, and short-term US expats.

A few examples of this include providing consulting services, running an independent business, or working as an individual contractor. Essentially, you operate on your own without registering a formal company.

How should self-employed US expats report their income?

If you are self-employed, you must report all worldwide income, including what you earn in India, to the IRS. This involves completing Schedule C (Profit or Loss from Business) to detail your business income and expenses.

After calculating your net income (total income minus allowable business expenses like supplies, travel, or advertising), you report it on Form 1040.

This net income is what determines both your income tax and self-employment tax.

Is self-employment tax mandatory for US expats?

Yes, self-employed US expats are required to pay self-employment tax. This is different from regular income tax and is meant to cover Social Security and Medicare contributions.

The rate for self-employment tax is 15.3% of your net self-employment income.

Many expats incorrectly assume that paying income tax in India exempts them from US self-employment tax. However, since the US does not have a Totalization Agreement with India to avoid dual social security taxation, you are still responsible for paying the full 15.3% self-employment tax to the US, even if you pay similar taxes in India.

How do the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC) work for self-employed expats?

The FEIE allows you to exclude up to US$130,000 of earned income from US taxes for the 2025 tax year. You may also use the FTC to offset your US tax liability by taking a credit for the taxes you’ve paid to the Indian government.

Why must self-employment tax be paid if there is no Totalization Agreement?

The US has Totalization Agreements with some countries to prevent dual social security taxation. Unfortunately, there is no such agreement between the US and India. This means that self-employed US expats in India must pay self-employment tax in the US, even if they are paying similar social security taxes in India. This dual taxation is unavoidable and requires US expats to pay into both systems.

What are the steps to file self-employment income as a US expat?

Calculate your net earnings: Start by using Schedule C to calculate net earnings by subtracting all allowable business expenses from your gross income.
Complete Schedule SE: After calculating your net earnings, use Schedule SE (Self-Employment Tax) to determine your self-employment tax liability. This tax must also be reported on Form 1040.
Claim deductions and credits: You can use Form 2555 to claim the FEIE or Form 1116 to claim the FTC. Note that these reduce your regular US income tax but do not affect your self-employment tax.

What business expenses can be deducted by self-employed individuals?

Self-employed US expats can deduct various business-related expenses, reducing taxable income. Common deductible expenses include:

Office supplies: Costs like paper, pens, and other items used in your work.
Travel expenses: Business-related travel expenses such as flights, lodging, and meals.
Marketing and advertising: Costs related to advertising your business, like website costs or digital ads.
Home office deduction: If part of your home is used exclusively for business, you may qualify for a home office deduction.
Professional services: Fees paid to accountants, consultants, or attorneys.
Insurance: Premiums for business-related insurance, including liability insurance or health insurance for yourself as a self-employed individual.

Is self-employment tax mandatory for US expats?

Yes, self-employed US expats are required to pay self-employment tax.

Should self-employed US expats consult a tax professional?

Absolutely. Filing as a self-employed expat is more complicated due to the additional self-employment tax requirements and dual-taxation issues.

It is highly recommended to work with a tax professional experienced in both US and Indian tax laws. They can help you correctly file all forms, maximize deductions, and ensure compliance to avoid penalties.

What other considerations should self-employed US expats be aware of?

FBAR and FATCA compliance: If you have foreign bank accounts with a combined value exceeding US$10,000 at any point during the year, you must file the Foreign Bank Account Report (FBAR). Additionally, if your foreign assets are above certain thresholds, you need to file Form 8938 under FATCA.
Quarterly estimated tax payments: As a self-employed individual, you are responsible for making quarterly estimated tax payments to the IRS. Failing to do so may lead to penalties and interest charges.
Managing dual taxation: Since there is no Totalization Agreement with India, you will need to manage dual contributions for social security. This means being financially prepared for both Indian and US social security payments.

Why partner with a specialist Expat accountant?

Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.

Get Your Custom Tax Quote