I'm Self-Employed and Moving Abroad. Does the Foreign Earned Income Exclusion Cover Me?
The kitchen was the reason the whole thing worked.
North-facing window, good light until about four, a counter deep enough to get the camera low without the tripod legs showing. Makeda had filmed four hundred and eleven videos standing in that spot. She knew exactly where to put her feet.
In nine weeks she was giving up the lease.
The spreadsheet had been open on her laptop for most of the evening. Flights. Shipping. Six months of rent in Addis, which was less than two months here. The number at the bottom that said she could do this.
She had the number in her head the way everybody has the number: one hundred and thirty thousand dollars, excluded, gone, the government's own mercy for people who live somewhere else. She earned more than that but not so much more that it frightened her. She had run it twice. She would be fine.
She posted the question in a group anyway, mostly to hear someone say it back to her.
Moving in Nov, will be abroad full time. I get that I still have to file. But with the FEIE I'm basically covered, right?
The reply came in under two minutes.
Are you self-employed?
A pause. Long enough that she watched the three dots start and stop twice.
Okay. Sit down.
The story pauses here. Here is what the law actually says.
What the Exclusion Actually Does
Under IRC Section 911, a qualifying US person living abroad can exclude up to $130,000 (2025) of foreign earned income from US taxable income. To qualify you must meet the physical presence test (330 full days outside the US in any 12-month period) or the bona fide residence test. You claim it on Form 2555. If you qualify and your foreign earned income sits under that ceiling, your US income tax on that income can be zero.
Read that carefully. Income tax. Not all tax.
What the Exclusion Does Not Do
The Foreign Earned Income Exclusion does not exempt you from self-employment tax.
IRC Section 1401 imposes self-employment tax on net earnings from self-employment, and Section 911 excludes income for purposes of the income tax only. The two provisions do not touch each other. You can exclude every single dollar you earned and still owe self-employment tax on all of it.
Self-employment tax is 15.3%. That is 12.4% for Social Security plus 2.9% for Medicare. On $180,000 net income, that is roughly $25,400, and the exclusion does nothing to that number.
The One Thing That Can Change It
Totalization agreements. The US has these with roughly 30 countries and they prevent double payment into two social security systems for the same work. There is no US-Ethiopia totalization agreement and no income tax treaty either. For a self-employed American in Addis Ababa: full 15.3% to the United States, plus whatever Ethiopia requires, with no mechanism to coordinate the two.
Bottom Line
The Foreign Earned Income Exclusion (IRC Section 911) excludes foreign earned income from US income tax only. It does not exempt self-employed Americans from self-employment tax under IRC Section 1401: 15.3% on 92.35% of net earnings. On $180,000 net, self-employment tax runs approximately $25,400 regardless of the exclusion. The only relief is a totalization agreement between the US and the country where the person lives. Check the SSA list before choosing a country. Check entity structure options before moving. Fix quarterly estimated payments now (IRC Section 6654). Find your plan at taxjet.co.
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Renee Mizrahi, EA, CFE
Our founder spent twenty years in U.S. tax practice. But something shifted when her daughters began living abroad permanently: Nepal, Cambodia, Thailand, Israel, France, and a long list of places she has genuinely lost track of.
Makeda and Kree are fictional characters created to make real tax situations easier to understand. The people are not real. The law is. Nothing here is advice for your specific situation.
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