[tebling]

I've been offered a contracting job in Wellington, and if I took it I would be considered self employed. I only recently learned (unfortunately AFTER negotiating a rate) that US citizens who are self employed are still subject to a 15.3% US self employment tax (basically social security tax).

Needless to say, this is quite a disappointment and will have a large detrimental effect on the cost of living budget I'd forecast. On top of paying 39% NZ income tax (on >$60k) this makes for a total of 55% tax! Ouch!

Are there any others in the same position, and what did you do (if anything) about it? Business related deductions could bring this down, and I've heard rumblings that incorporating a business could eliminate the tax altogether (at the expense of needing to hire an accountant to handle the vastly more complex paperwork).

I'm probably going to have to hire a tax professional here in the US to work out the details before I sign the contract, but I'd love to hear from anyone in a similar position.

[barryp]

Incorporation is certainly an option, it's extremely common amongst IT contractors, and the paperwork associated with it is not at all complex in NZ.

But I'd first look at IRS Pub 54 to see if you're eligible for the Foreign Income Exclusion - first US$85k of earned income is free of tax - and what effect that has on your possible self-employment tax obligations. (My income in NZ is from salary so I never had to deal with this issue personally.)

[Nick88]

Barry is right about incorporation, it isn't really all that complex or expensive here. It might also give you more deductions.

[tebling]

Thanks Barry (and Nick) - it's certainly a relief to know that the incorporation paperwork isn't going to be a major undertaking.

I have indeed looked into the tax exclusion, and will certainly be taking advantage of it. Unfortunately, from what I can tell by reading pub 54, social security tax is computed based on your pre-excluded income. If that were not the case, then it would pretty much be a non-issue.