I have a self employed client, working in Greece. . How do I suppress SE Tax calculation in preparing his 2018 Return in Pro Series?

[Pebbles41570]

I have a self employed client, working in Greece. . How do I suppress SE Tax calculation in preparing his 2018 Return in Pro Series? Paid SE in Greece.

[sjrcpa]

Why do you think no SE tax is correct?

[abctax55]

:+1:

[Pebbles41570]

They Pay SE in Greece along with Greek Taxes. Should I file the 1116 form?

[sjrcpa]

Is there a totalization agreement between the US and Greece? The 1116 is only for income taxes.

[Pebbles41570]

yes i printed it out and it was signed in 1994.

[itonewbie]

No FTC for Greek social security taxes since there's a totalization agreement with Greece.

[TaxGuyBill · Accepted solution]

You will also need to get some certification about the SE taxes (see cited link below).

As far I as I know, ProSeries is not set up for that, so you need to manually do it (or claim it is Notary income, but I would not recommend that).

In ProSeries:

1. "Find Form" (Control-F), then type "SE", then open "SE Adj Wks".   The other option is to go to Line 57 of Schedule 4 and double click the FIRST blank area (with the dots).
   
2. On the SE Adj Wks, in Part 2, Line 7, enter the amount of SE profit that is exempt.
3. Print the tax return, manually write "Exempt, see attached Statement" next to Line 57 of Schedule 4, and mail the tax return along with the certificate of exemption.

To establish that your self-employment income is subject only to foreign social security taxes and is exempt from U.S. self-employment tax, request a certificate of coverage from the appropriate agency of the foreign country.  If the foreign country will not issue the certificate, you should request a statement that your income is not covered by the U.S. social security system.  Request it from the U.S. Social Security Administration.  Attach a photocopy of either statement to your Form 1040 each year you are exempt from U.S. self-employment tax.  Also print “Exempt, see attached statement” on the line for self-employment tax.

https://www.irs.gov/individuals/international-taxpayers/self-employment-tax-for-businesses-abroad

[itonewbie]

Agree with Bill.  What your client needs is a Certificate of Coverage (CoC) from the Greek fund to which your client makes contributions.

Unlike employees who are seconded to Greece on assignment, where the CoC just needs to be kept on file in case of audit, self-employed individuals must attach a copy of the CoC (or the statement from SSA as Bill mentioned in the unlikely event your client is not able to obtain a CoC) to the 1040 each year.

Having said that, it is not uncommon for clients who operate businesses overseas to mistake their employment status for US tax purposes.  (Well, that's probably true for domestic shareholder-employee of S-corp too but even more so for foreign businesses.).  This is because US tax treatment is not driven by how a particular entity type organized under foreign law is treated for tax or legal purposes in that particular jurisdiction and the IRC's classification regulations for foreign entities are slightly different from those for domestic ones.  You will, therefore, need to determine whether the foreign entity type of that particular country is classified a per se corporation based on IRC regulations, the default classification depending on whether there's one or more owners as well as whether each has a limited liability, and whether CTB election was made.  For example, if your client's foreign entity type is not a per se foreign corporation, your client is the sole owner, and your client has only a limited liability, the default classification is generally a corporation (and not a DRE) unless a CTB election is made.

Foreign entity and it's classification also create a different set of issues and compliance requirements that need to be considered.  These include PFIC, Subpart F, and GILTI, partly dependent on their types of income and business activities.

[TaxGuyBill]

Interesting, I didn't realize the IRS could possibly treat it as a corporation even if it isn't actually a corporation (in your example because there is limited liability).

I'm clueless for most things related to foreign taxes ... what is the "CTB" election?

[itonewbie]

This one you know... check-the-box

Yeah, these rules are a bit different for foreign entities.  It could be confusing for folks who are used to dealing with domestic entities and didn't look up these differences.