Discover all the tax services we offer
Get an instance service estimate
Comprehensive guides on everything you need to know from planning your expat journey to filing your expat taxes with ease.
Our Country Guides will help you understand the ins and out of your specific U.S. expat tax requirements.
Access up-to-date articles, breaking news, deadline information and in-depth case studies on US expat taxes.
Get the answers to all your questions and browse Greenback’s most frequently asked customer questions.
Sign up for one of our live webinars hosted by our expert accountant team or watch one on-demand today.
Subscribe to our monthly newsletter to get money-saving tips, expat tax news, and exclusive promos.
Learn how our straightforward pricing, easy process, and an expert team makes us uniquely qualified to simplify the hassle of expat tax filing.
We’ve assembled a team only the most experienced, knowledgeable, and friendly CPAs and IRS Enrolled Agents our clients can trust.
Read our client testimonials to get a feel for the Greenback experience straight from the expats we’ve worked with.
We’re featured in many reliable news sources thanks to our reputation as experts on US taxes abroad.
Whatever your expat tax needs, wheverver in the world, we’d love to hear from you.
Knowledge Center Expat Tax Essentials
As an American living and working abroad, it’s essential to know whether the US has a totalization agreement with your host country. But first, you need to know why it matters. In this article, we’re going to look at totalization agreements and how they might affect your expat taxes.
Totalization agreements, also known as social security agreements, are international treaties that establish rules for which countries should receive an expat’s social security contributions. This helps prevent US expats from having to pay into multiple social security systems out of the same income stream – a form of double taxation.
For example, let’s say an expat named Matt moves to Australia to take a job. He must contribute to the US Social Security system as a US citizen. As an employee of an Australian company, he is also required to contribute to the Australian social security system. This means that Matt might have to pay a social security tax twice from his employment income.
Fortunately, depending on the details of his employment, the US-Australia totalization agreement would clarify which system he should contribute to—rather than requiring that he contribute to both.
But the risk of double taxation remains for Americans living and working abroad in countries without totalization agreements. In addition, the US-Australia agreement is limited to only certain types of employment income. It doesn’t cover all social security taxes. So, Americans working abroad may still be required to contribute to two different systems depending on their employment type.
Totalization agreements are often confused with tax treaties. While the two do have similar purposes, they also have notable differences. So what is a tax treaty, and what makes it different from a totalization agreement?
Tax treaties are designed to prevent double taxation but differ from totalization agreements in dealing with income taxes rather than social security. If a country enters into a tax treaty with the United States, the treaty will determine which country can tax a given source of income.
But because most tax treaties don’t establish any rules for social security contributions, even expats living in a country with a tax treaty could still face double taxation through a social security tax if there is no totalization agreement.
If the country you reside in has a totalization agreement with the US, it could have a major impact on your tax obligations.
Totalization agreements can reduce or eliminate social security taxes for US citizens who live in a foreign country. They also give employers relief from the burden of withholding and reporting social security contributions for their employees.
A totalization agreement is a treaty that allows for coordinating social security taxes. When an expat lives in a country with a totalization agreement, they can receive credit for their contributions to the US Social Security system. This means that if you earned income from two countries and paid into both, only one country can tax your earnings from that source.
Let’s look at how totalization agreements affect employed and self-employed Americans living abroad.
The details of US totalization agreements vary from country to country. However, most totalization agreements have the following rules:
It isn’t always one or the other, though. Expats can contribute to—and earn credits from—both social security systems at different times (or for separate income streams). These credits will then count toward your social security coverage in both countries.
For example, let’s say that Cindy moves to Italy, which has a totalization agreement with the US. Because her work plans change over the years, she ends up paying into both the US and Italian social security systems at various times.
When Cindy is ready to retire in Italy, she discovers she doesn’t have enough Italian credits to qualify for social security benefits in Italy. However, she can use her US credits to supplement her Italian credits, allowing her to qualify.
Her US credits are not reduced through this process, either. In the above example, Cindy’s US social security credits would remain the same even after she “transferred” them to Italy. As a result, she may be entitled to social security benefits from the US and Italian governments.
As with expat employees, self-employed expats must pay a social security tax on their income. Because this tax is typically higher than it is for employees, totalization agreements are even more important for anyone who is self-employed.
Unfortunately, the rules for self-employed expats vary even more widely than for employees. This can make it difficult to know precisely how you should pay your social security tax—and to whom.
In most cases, the answer will depend on one or more of the following factors:
Regardless, self-employed expats can also earn social security credits in both countries. These credits can then be applied to both systems.
Currently, the United States has active totalization agreements with 30 countries.
If the country you call home is on this list, you may be able to reduce your tax liability using the rules laid out by the relevant totalization agreement. However, totalization agreements can get tricky. We always recommend getting advice from an expat tax professional when navigating the complex topic of social security taxation.
In fact, if you’d like, we can give you all the help you need.
If you’re working abroad, knowing where you stand from a tax perspective is a good idea. You don’t want to get caught unaware and have your home country’s government penalize you with an unexpected bill for taxes you didn’t pay during your time abroad, so make sure to find out if there is a tax treaty covering expat employees between that country and yours. (Believe it or not, this mistake is common.)
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.