As the number of Americans deciding to either retire overseas or split their careers between multiple countries increases, so does the concern about double Social Security liability on those individuals. If you’re one of the many Americans living abroad, you’ll need to know what Totalization Agreements are and whether or not the US has an agreement with your country of residence.
Double taxation is not just a problem for Americans living abroad; it’s also a common problem for employers and employees. The US Social Security coverage extends to Americans working abroad even if they have been hired abroad or have been on a long-term international assignment. In addition to the United States’ Social Security exposure, US companies and their employees are also subject to the foreign country’s requirements for contributions to their national social security.
What Are Totalization Agreements?
The United States has entered into agreements called Totalization Agreements with several countries for the purpose of avoiding the double taxation of income with respect to social security taxes. The purpose of these agreements is to determine whether any US citizen or resident alien is subject to social security taxes of a foreign country.
Who Is Covered by Totalization Agreements?
Totalization Agreements can cover individuals planning on returning to the US or permanently working in a foreign country. It typically specifies that Americans living abroad on fixed short-term contracts or not intending to stay abroad for more than five years will continue paying social security taxes to the United States, and not in the country where they live. It also covers those Americans planning on staying in those countries, in which case they will pay in their country of residence, and would be exempt from US Social Security tax.
In the case of coverage by the United States’ Social Security tax, the individual’s employer should get a certificate of compliance from the Office of International Programs of the Social Security Administration stating that the person is exempt from foreign social security tax. For those planning on permanently working in a foreign country, under the Totalization Agreement, the individual’s pay is exempt from US Social Security, and the employer should get a declaration from the authorized agency of the foreign country authenticating that the compensation is subject to the social security coverage of that country.
What About Self-employed Americans Living Abroad?
As an American living abroad, self-employed individuals are subject to self-employment tax, which is a social security and Medicare tax on net earnings from self-employment of $400 or more per year (all business income less all deductions allowed for income tax purposes.)
Below is the list of the countries that have entered into Totalization Agreements with the United States per the IRS Totalization Agreements Page.
- Czech Republic
- South Korea
- United Kingdom
In order to ascertain that an individual’s pay in a foreign country is subject only to US Social Security tax and is exempt from foreign social security tax, the employer in the United States can write to the address listed below:
U.S. Social Security Administration
Office of International Programs
P.O. Box 17741
Baltimore, MD 21235-7775
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