The Agreement provides the following rules for self-employment:

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  U.S. and Australian nationals residing in the United States and working in self-employment are subject only to U.S. Social Security coverage and taxation;

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  U.S. nationals residing in Australia and working in self-employment are exempt from U.S. Social Security coverage and taxation; and

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  Australian nationals residing in Australia and working in self-employment are not covered under either country's system.

 

Under U.S. law, self-employed U.S. citizens or U.S. lawful permanent residents (green card holders) pay taxes to and have coverage under the U.S. Social Security program on their worldwide income. Australia's Superannuation Guarantee (SG) legislation does not cover self-employed workers.

The effects of the Agreement on the coverage of self-employed workers are as follows:

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  The Agreement does not have any effect on the coverage of self-employed U.S. nationals or lawful permanent residents residing in the United States;

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  The Agreement exempts U.S. national residing in Australia and working in self-employment from their ordinary obligations to pay into the U.S. Social Security system;

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  The Agreement provides U.S. Social Security coverage for Australian nationals residing in the United States and working in self-employment; and

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  The Agreement does not have any effect on Australian nationals residing in Australia and engaged in self-employment activity (they continue to have no SG coverage).

As a result, self-employed workers, including U.S. nationals, who are subject only to Australian laws under the Agreement, are not required to contribute to either country.

 

Generally, self-employment work activity under U.S. Social Security law is considered self-employment work activity under Australian law. In certain cases, however, a person may be engaged in an activity that one country considers self-employment and the other country considers employment. For purposes of applying the Agreement, any such activity will be subject to the rules for self-employment. As a result, a person who is a resident of the United States will be subject only to U.S. law and a resident of Australia will be subject only to Australian law.

 

A self-employed U.S. citizen who is subject only to Australian law under the Agreement and is exempt from paying Self-Employment Contributions Act (SECA) tax must still file a U.S. tax return every year. To show that the self-employment earnings are exempt from U.S. Social Security self-employment tax, the individual must do the following:

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  Indicate on Schedule SE that the earnings are exempt under the Agreement; and

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  Request a letter of exemption from the U.S. Social Security Administration; and

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  Attach a photocopy of the letter of exemption to the U.S. tax return every year (see RS 02002.045) as proof of the exemption.