As a US expat living abroad, you’ve likely heard of the term ‘totalization agreement’ – but perhaps you aren’t well versed in what it does to help you save money on your expat tax return. Here, we’ll break down the purpose of a totalization agreement, how it can help you and the countries where you’ll find an agreement in place with the US.
What is a Totalization Agreement?
A totalization agreement, otherwise known as a Social Security agreement, is an arrangement between the US and a foreign country that effectively prevents you from paying social security contributions into two systems. Without a totalization agreement in place, US expats may face double taxation on social security when it comes to their expat tax return.
These agreements eliminate dual coverage and dual contributions for the same work and income, meaning you’re only subject to social security taxes in the country in which you’re working.
Which Countries Have Totalization Agreements with the US?
There are currently 26 countries with which the US has totalization agreements in place. They are as follows:
|Slovak Republic||South Korea||Spain||Sweden|
The US and Brazil also recently entered into a totalization agreement, but it is still currently in process. You can review the full list of countries and details on the IRS website.
To Which Country Will I Pay Social Security Taxes?
If you happen to reside in one of the countries in which the US has a totalization agreement in place, you can easily determine how your social security taxes will be handled by taking a look at the agreement. There are certain specifications in place that explain which country should receive your contributions, based on the length of time you are abroad.
- Going to be abroad for less than five years, aka a ‘short period of time’? Generally speaking, you’ll pay into the social security system of your home country – the US.
- Going to be overseas for an indefinite period of time or over five years? Generally, you’ll be required to pay into the social security system of the country in which you’re living – aka, your host country.
What If I’m Self-Employed?
Self-employed expats also can take advantage of a totalization agreement if there is one in place between their host country and the US, but the guidelines can differ, so it’s important to carefully review the agreement or consult with a tax professional to understand how your expat tax return will be affected.
To learn more about the specific tax requirements in your host country, review our country guides. You can also find money-saving tips and expat tax advice in our tax guide for Americans working overseas.
Still Need to File Your Expat Tax Return This Year?
Let our team of expat-expert accountants make the process of filing your expat tax return a hassle-free experience for you – get started with us today and cross taxes off your to-do list!