Who Must Pay Self-Employment Tax? If you are abroad and you are a self-employed U.S. citizen orresident, other than a U.S. citizen employee of an internationalorganization, foreign government, or wholly owned instrumentality of aforeign government, you generally are subject to the self-employmenttax. This is a social security and Medicare tax on net earnings fromself-employment of $400 or more a year. For 1999 the tax is on netearnings of $400 or more up to $72,600 for the social securityportion. All net earnings are subject to the Medicare portion. Yournet self-employment income is used to figure your net earnings fromself-employment. Net self-employment income usually includes allbusiness income less all business deductions allowed for income taxpurposes. Net earnings from self-employment is a portion of netself-employment income. This amount is figured on Schedule SE (ShortSchedule SE (Section A), line 4, or Long Schedule SE (Section B), line6). The actual self-employment tax is figured on net earnings fromself-employment. Employed by a U.S. church.If you were employed by a U.S. church or a qualifiedchurch-controlled organization that chose exemption from socialsecurity and Medicare taxes and you received wages of $108.28 or morefrom the organization, the amounts paid to you are subject toself-employment tax. However, you can choose to be exempt from socialsecurity and Medicare taxes if you are a member of a recognizedreligious sect. See Publication 517. ERROR MSGEffect of exclusion.You must take all of your self-employment income into account infiguring your net earnings from self-employment, even income that isexempt from income tax because of the foreign earned income exclusion. Example.You are in business abroad as a consultant and qualify for theforeign earned income exclusion. Your foreign earned income is$95,000, your business deductions total $27,000, and your net profitis $68,000. You must pay social security tax and Medicare tax on yournet earnings even though you can exclude all of your earned income. Optional method.You can use the nonfarm optional method if you are self-employedand your net nonfarm profits are less than $1,733 and less than72.189% of your gross nonfarm income. You must have had $400 of netself-employment earnings in at least 2 of the 3 immediately precedingtax years. You cannot choose to report less than your actual netearnings from nonfarm self-employment. You cannot use the nonfarmoptional method for more than 5 tax years. Use Long Schedule SE(Section B). For more detailsget Publication 533. Members of the clergy.Kudjape Alojamiento en hotel baratoAlthough members of the clergy may be employees in performing theirministerial services, they are treated as self-employed forself-employment tax purposes. Their U.S. self-employment tax is basedupon net earnings from self-employment figured without regard to theforeign earned income exclusion or the foreign housing exclusion. Members of the clergy are covered automatically by social securityand Medicare. You can receive exemption from coverage for yourministerial duties if you conscientiously oppose public insurance dueto religious reasons or if you oppose it due to the religiousprinciples of your denomination. You must file Form 4361 to apply forthis exemption. This subject is discussed in further detail in Publication 517. accommodation in BiarritzPuerto Rico, Guam, Commonwealth of the Northern MarianaIslands, American Samoa, or Virgin Islands.hotels in AntwerpIf you are a U.S. citizen or resident and you own and operate abusiness in Puerto Rico, Guam, the Commonwealth of the NorthernMariana Islands, American Samoa, or the Virgin Islands, you must paytax on your net earnings from self-employment (if they are $400 ormore) from those sources. You must pay the self-employment tax whetheror not the income is exempt from U.S. income taxes (or whether or notyou must otherwise file a U.S. income tax return). Unless yoursituation is described below, attach Schedule SE (Form 1040) to yourU.S. income tax return. If you do not have to file Form 1040 with the United States and youare a resident of: Puerto Rico, Guam, The Commonwealth of the Northern Mariana Islands, American Samoa, or The Virgin Islands, figure your self-employment tax on either Form 1040-PR orForm 1040-SS, whichever applies. You must file these forms with the Internal Revenue Service Center,Philadelphia, PA 19255-0215.