US Citizen Working Abroad

Hi June,

Firstly let me say your book is amazing, very well written, a joy to read and I was so happy to find it. The book answered most of my questions on self employment but also made me question if I actually am self employed?

Below are my specifics, if you could give me your opinion I would be very grateful.

Background: I work part time for a German company as a sales rep selling to the US stores on the US Military bases in the UK. I have business cards from the company with my name on them, a company e-mail address and am listed on the company org chart as a manager. I go to company sales meetings am told what needs to be done but pretty much left alone as to how I execute the programs in my territory (the UK) and have no other clients don’t advertise etc etc. However the company requires me to submit invoices monthly for services rendered and also pays any expenses and travel costs I incur.

As I live outside of the US I claim these as Foreign Earned Income on my 1040 and have always thought I was an employee and have always filed as such even though the German company said I was a contractor. I am not provided a W-2 or a 1099.

My problem, question is I guess a grey area:
1) Am I actually an employee or self employed?
2) If I am an employee then how do the Social Security Taxes get paid or are they even required as the company is German and has no US office?
3) If I am self employed I will have to re-file from previous years to pay my social security taxes, but then can claim all the deductions associated.

But by following your tests I’m not sure the IRS will agree I’m self employed but as it’s a German company I’m pretty much lost and have not had any luck finding anyone with a clue? Until I found your book that is, hopefully you can answer a few questions and point me in the right direction.

Anyway you must get lots of letters like this but thank you again for writing such a great book.

Regards,
Grant
Frankfurt, Germany


Dear Grant,

Thank you for your generous comment on my book.

I do get lots of letters but those that are multi usually multi-state not multi-country!

You are an employee and your employer should be treating you as such with the appropriate withholding.

I have clients in Germany who are US citizens who are self-employed. I also have clients in Germany who are US citizens who are employees of German companies. I have no experience with a US citizen living in the UK working in Germany. I do not know about reciprocal tax agreements between the UK and Germany and that may come into play here. That said, here's as far as I can point you:

Those clients who are employees of the German companies have German taxes withheld -- Germany's equivalent of our Social Security and Medicare Tax [self-employment tax for an indie -- SE Tax] as well as German income tax. On their US tax return they get credit for German income tax paid. If they qualify they also get the foreign earned income exclusion. There is an option to voluntarily pay Social Security tax to the US.

If you choose not to confront your employer on this then you must pay your own SE Tax to the US government same as a US citizen living in the States. Check out these posts taxes -- self-employment tax for more info on SE tax. Also be sure to read my blog post How are your plumber and the Treasury Secretary nominee alike?

Yes, you can, and should, file amended tax returns.

You might try the embassy for a tax pro recommendation.

I wish you success!

Best regards,
June