Social Security Information
Information below only touches on a few points of this very complex subject. The website of the Social Security Administration (www.ssa.gov) is a rich source of information in user-friendly language. It also provides means to get an estimate of what your Social Security benefits will be, to aid in retirement planning.
For more information on the Social Security issues facing Americans abroad, see here.
A specific section of the website is dedicated to "Service Around the World" (www.ssa.gov/foreign). As an American abroad, you will work through the US embassy or consular Federal Benefits Unit serving your region. To locate the appropriate FBU, you can check the website of the American embassy of your country of residence, under “U.S. Citizens Services.” US embassy/consular websites worldwide can be located via www.ssa.gov/foreign/foreign.htm
Please note that the Social Security Administration has begin mailing SSA forms 7161 and 7162. The mailing of these forms was suspended during the COVID pandemic due to mailing service disruptions. See more information here: Service Around the World - Office of Earnings & International Operations (ssa.gov)
“My Social Security” Accounts
For those who wish to create an online account to view their Social Security benefits via the online “My Social Security” portal please be aware that at this time you must have a US mailing address to create or to access your online account. The “My Social Security” authentication system requires address verification as one of the essential criteria for issuing an account. People with APO/FPO/DPO addresses can create an account overseas, but the system does not support registration and account creation for users with a private foreign address. This is due to the inability to provide a verification process for foreign addresses. Given the incidents of identity theft the US Social Security Administration wants to insure that creation of on-line accounts can be correctly verified, matching the number with the correct recipient The US Social Security Administration is looking into how to allow those iving overseas to create online accounts however, currently the service is not availalbe. For more information on “my Social Security” accounts, please see: www.ssa.gov/myaccount/
To be eligible to receive Social Security retirement benefits you generally must have contributed to the Social Security system for a cumulative total of at least 40 quarters (10 years) – or be the spouse or child of someone who paid into the system for minimally this length of time. See: How many credits are needed to start receiving benefits?
In general, US Social Security and Medicare taxes continue to apply to wages for services you perform as an employee outside of the United States if you are working for an American employer and for certain other employment situations. For more information on this see: Are Social Security and Medicare taxes payable when outside the US?
Most people apply for Social Security retirement benefits as they reach what is called "Full Retirement Age." This is age 65 for people born in 1937 or earlier, and gradually increases until age 67 for people born in 1960 www.ssa.gov/retire2/retirechart.htm. It is possible to start drawing benefits at a reduced rate from age 62, or delay until as late as age 70, with an increase in benefits.
Be aware that as a US citizen you will possibly be taxed by the US on a portion of your Social Security benefits. The IRS website has a complete information page devoted to the tax implications of Social Security. Among the subjects treated are Social Security Tax Consequences of Working Abroad.
If you are a US citizen, there is generally no problem with your receiving Social Security payments while living outside the United States. See: https://www.ssa.gov/pubs/EN-05-10137.pdf . Benefit payments cannot be sent to people residing in Cuba or North Korea, and there are some restrictions for individuals in a few other countries.
There is increasing emphasis on electronic payments. Generally, your benefits can be credited directly to your US or foreign bank account. If you don't have a US based bank account, ACA can help with the ACA-Member/SDFCU account. The account can be opened online and without a need for a US residential address. Transfers from an SDFCU account to your foriegn bank account are also possible. Payments can also be credited to a debit card account under the DirectExpress card program, and you can make withdrawals using your card.
If you have worked less than 40 quarters (10 years) under Social Security in the United States, but also contributed to an equivalent social program in a country with which the United States has a bilateral social security agreement, you may still be able to obtain some retirement benefits from Social Security. See: International agreements and totalization benefits.
If you receive a foreign pension, or a pension from work in the United States not covered by Social Security (such as for a federal, state or local government agency), your Social Security benefits may be reduced by application of the Windfall Elimination Provision (WEP). Note that WEP does not apply if you have "substantially" contributed to Social Security for 30 years, and is alleviated if you have contributed to Social Security for more than 20 years. More about WEP and how it affects Americans abroad is on this ACA webpage here.
Do you believe your Social Security benefits have been unfairly reduced by the Windfall Elimination Provision? Social Security will give you 60 days to appeal their decisions. Full information on the appeals process here: www.ssa.gov/pubs/EN-05-10041.pdf
Note for those with immediate family who are
non-resident aliens (NRAs)
That is, non-citizens who do not have a green card: Be aware that there may be an automatic federal withholding tax of 30% on 85% (i.e. 25½%) of each benefit payment made to an NRA. There are variations, depending on country of residence. There can be additional residence requirements for NRAs claiming Social Security as dependents or survivors of a covered worker. See this Social Security publication.
NRAs who are entitled to Social Security retirement benefits and who reside in countries with no bilaterial social security agreement with the US may have their benefits cut off if they remain more than six months outside the US.
If you start a business in your country of residence while living abroad, and are self-employed, you must pay self-employment taxes in the US ("SECA" contributing to Medicare and Social Security) in addition to those in your country of residence unless you, a US citizen/green card holder, live or work in a country which has a totalization agreement with the US. In cases where there is such an agreement, the self-employed individual is usually exempt from SECA and instead subject to local self-employment tax. The self-employment tax rules apply no matter how old you are and even if you are already receiving Social Security.
If you are working abroad for a non-US employer, you may NOT make voluntary contributions to your Social Security account.
For general information about receiving benefits abroad, read Social Security publications: Your Payments While You Are Outside the United States and International Agreements, Payments Outside the United States, and Social Security in Other Countries
Social Security FAQ for Americans living overseas
IMPORTANT: A series of FAQs from the IRS, State Department and the Social Security Administration on obtaining a social security number, expatriation and tax implications (FATCA) is available here: www.ssa.gov/foreign/joint_frequently_asked_questions.pdf
Q: What is the foreign work test?
A: The foreign work test only applies to monthly benefits of those who work before attaining their full retirement age.
The "foreign work test" applies to persons living abroad who are being paid Social Security benefits (other than those entitled because of disability), and who work prior to full retirement age in employment or self-employment outside the US that is not covered by the US Social Security system.
The test is based only on the amount of time during which the beneficiary is employed or self-employed, not on the amount of the beneficiary's earnings or losses. The foreign work test was intended to make it unnecessary to convert earnings in a foreign currency into earnings in specific dollar amounts.
Under the foreign work test, your monthly benefit is withheld for each calendar month that you work (or are deemed to have been available to work) for more than 45 hours.
This contrasts with the rule applicable for working while under full retirement age while in the US: If you’re younger than full retirement age during all of 2019, $1 will be deducted from your benefits for each $2 you earn above $17,640. If you reach full retirement age during 2019, $1 will be deducted from your benefits for each $3 you earn above $46,920 until the month you reach full retirement age. www.socialsecurity.gov/pubs/10069.html#a0=0
Q: Doesn't the foreign work test apply to Social Security recipients under the age of 70?
A: No, only those under full retirement age, which varies from 65-67, depending on your year of birth. The under-70 rule was abolished by the Senior Citizens' Work Act of 2000.
Q: Do you lose your Social Security if you abandon your green card (permanent resident) status or renounce US citizenship?
A: Once you have renounced US citizenship, you become a non-resident alien (NRA), and the rules for NRA's apply. While it is your responsibility to notify authorities of your changed status, this is generally asked in the questionnaire that Social Security beneficiaries have to submit annually.
As an NRA, it depends on your place of residence whether you can continue to collect Social Security in the long run. Depending on a combination of US bilateral agreements (or lack thereof), your current citizenship, and your country of residence, it can range from only a minor payment difference to having Social Security payments discontinued after being more than six months outside the US.
If you have not been in the United States at any time during the six calendar months before your first month of entitlement, then to get your benefits started you must come to the United States and stay every hour of a full calendar month. For example, if you came to the United States on April 24, you could not leave the United States before June 1. This means that you would be present in the United States the entire month of May.
After you complete this visit for a full calendar month, there are two ways to continue receiving benefits. You can choose one or the other:
• You must spend any part of one day in the United States at least once every 30 days or less; or
• If you do not do one-day visits (or if you fail to make a visit in a 30-day time period), then you must come to the United States and stay every hour of 30 consecutive days. For example, if you came to the United States on April 24, you could not leave the United States before May 25. This visit for 30 days must be completed no later than the end of the six-month period that started with your first full calendar month outside the United States.
There are a couple of countries to which Social Security cannot make payments. US citizens can accumulate unpaid payments while in these countries and receive them after departing the country; NRA's lose those payments.
Note that dependent's and survivor's benefits may also be affected by change of status from "citizen" to "NRA" of the individuals or the worker concerned.
In any case, keep your Social Security card. What you have in your Social Security account always remains there, and your Social Security number is unique to you. It's just a question as to whether Social Security will pay out under specific conditions.
Full details can be gleaned from the publication www.socialsecurity.gov/pubs/10137.html on "Your Payments While You Are Outside the United States." Best advice is to check with Federal Benefits Unit serving the country where you live (or via the American embassy website).
Q: Will my foreign (NRA) spouse/child receive survivor/dependent benefits from my Social Security while living abroad?
A: This depends on several factors. Generally, your NRA spouse can receive survivor benefits if he/she is a citizen of a specific country, or resides in a country with which the US has a social security agreement, or he/she has lived in the US for at least five years while your family relationship existed. There are a few other exceptions. Failing that, he or she would not receive Social Security payments based on your earnings. For full details see Your Payments While You Are Outside the United States, or contact the Federal Benefits Unit serving your area.
Q: What about my child adopted abroad? Will he/she be able to receive dependent or survivor benefits while abroad?
A: There are many factors that have to be taken into consideration by SSA, including where and when the adoption took place. For full details see Your Payments While You Are Outside the United States, or contact the Federal Benefits Unit serving your area.
Q: Are US taxes withheld on Social Security and survivors' benefits of NRA spouses of American citizens?
A: There may be an automatic federal withholding tax of 30% on 85% (i.e. 25.5%) of each benefit payment made to an NRA. For full details see Your Payments While You Are Outside the United States, or contact the Federal Benefits Unit serving your area.
Q: I am married to a foreign national and we live abroad. I collect Social Security. We have a minor child who has a US SSN and is a US citizen. Neither my child nor my spouse has ever been to the US. When I die will by minor child be eligible for survivor benefits though he/she has never been to the US?
A: Since your child is a US citizen, the question of residence in the US does not arise (as it would for your non-resident alien spouse). In terms of survivor's benefits, your child would get survivor's benefits until the age of 18 or, if he/she is still in secondary school at that time, until age 19.
Q: Can benefits for my minor children be paid into my own bank account?
A: Benefits for children are supposed to be directed into separate accounts that are set up for each child individually. However, the account does not need to be barred from access by the parents/caretaking individual.
Q: I receive a United Nations pension from the UNJSPF (United Nations Joint Staff Pension Fund). The Social Security Administration wants to reduce my Social Security pension, citing the Windfall Elimination Provision (WEP). Can they do that?
A: The Social Security Administration considers the UNJSPF to be a foreign pension fund and therefore applies the WEP. There have been many protests over the years – perhaps appeals – but without success.
Q: I have looked at the Social Security website and could not find if there is a way to receive one's Social Security pension benefits for an American citizen living abroad without a bank account anywhere in the world.
A: The Social Security Administration can send checks; however, there are some country exceptions. For current information about receiving Social Security payments outside the United States you can get a copy of Social Security Administration Publication No. 05-10137, ICN 480085, online, by postal mail from the Social Security Administration, or from the Federal Benefits Unit serving your area. (Check the American Citizens Services section of the American embassy In your country of residence.)
Q: Will the Windfall Elimination Provision (WEP) reduce my Social Security pension if I receive a foreign social security pension?
A: That depends:
a) If your foreign social security pension is paid under the terms of a totalization agreement between the foreign country and the US, the foreign portion of the pension will NOT be WEPed (i.e. reduced due to application of WEP).
b) If you have a foreign social security pension from a country that is not paid under terms of such a totalization agreement with the US, either because you have independently qualified for social security from the country in question (without relying on the terms of an existing totalization agreement) or because the US does not have a totalization agreement with the country in question – WEP provisions WILL apply. (See: https://secure.ssa.gov/apps10/poms.nsf/lnx/0300605386)
Q: I do not agree with Social Security's decision on the reduction of my benefits due to the WEP, how can I appeal.
A: If you believe your Social Security benefits been unfairly reduced by the Windfall Elimination Provision you can appeal. Social Security gives you 60 days to appeal their decisions. Full information on the appeals process here: https://www.ssa.gov/pubs/EN-05-10041.pdf
Q: Presently it is impossible to check my Social Security account online, as it requires a US address. In fact it is Americans residing abroad who can benefit the most from remote access than those in the US who can more easily visit a local office.
To create an account (https://secure.ssa.gov/RIL/SiView.do), I need to:
Have a valid E-mail address,
Have a Social Security number,
Have a U.S. mailing address, and
Be at least 18 years of age.
A: The "My Social Security" system requires address verification as one of the essential criteria for issuing an account, and the initial release of the system does not support registration and account creation for users residing at foreign addresses. SSA is planning to add this service in the future. In light of the current budget situation, SSA has suspended the Request a (mailed) Social Security Statement service. You may be able to estimate your retirement benefit using SSA’s Retirement Estimator (http://www.socialsecurity.gov/estimator/) – for this, no online account needs to be created. (Thanks to the Federal Benefits Unit, Frankfurt/Main, Germany, for this response.)
Q: I do not want to mail to the Social Security post office box address, can I mail to a physical address?
A: If you want to send an inquiry or documentation to the Division of International Operations in Baltimore, but does not want to send it to the PO box (such as by FedEx or UPS), the address is:
Division of International Operations
Social Security Administration
6100 Wabash Ave
Baltimore MD USA 21215
Obtaining/Reclaiming your Social Security Number (SSN)
Over time, the US Social Security Number (SSN) has evolved from merely the number of your account for retirement savings to something akin to a single national identification number that follows you throughout your US administrative life. It is indispensable on passport applications, tax returns, financial account reporting and numerous other business forms. And now it has gone international: under FATCA (the Foreign Account Tax Compliance Act) banks and other financial institutions around the world are required to ask American citizen clients for an IRS Form W-9 (Request for Taxpayer Identification Number and Certification), which includes their SSN.
For many American citizens (or green card holders) living abroad, such requests may cause panic. They haven’t thought of their SSN for years (if ever). Some never had one; some have lost theirs, don’t remember the number, or don’t even know if they ever had one. So, yet another unanticipated fallout of FATCA is the extra workload falling on American embassy and consulate Federal Benefits Units (FBUs) around the world.
Add to this mix the enhanced requirement for high-quality, verified documentation prior to issuing a SSN, due not only to FATCA, but to various recent laws aimed at countering fraud and fear of terrorists. The bottom-line message, particularly for Americans residing abroad, is: verify now that you and any citizen (or green card holder) you want to claim as your dependent, have SSNs. If not, roll up your sleeves, assemble your documentation, and apply as soon as possible, because it costs time (but not money) to obtain a SSN.
Social Security Administration’s user-friendly web site
The Social Security Administration web site provides clear and reader-friendly information: www.ssa.gov/ssnumber. All applications for SSNs, whether original, replacement, or for change of name or data, use the same form, the SS-5 form (www.ssa.gov/forms/ss-5.pdf). The different purposes may occasion differing degrees of documentation.
Social Security services while abroad
As an American abroad, you will work through the US consulate or consular Federal Benefits Unit serving your region. To locate the appropriate FBU, you can check the website of the Social Security Administration at this link: www.ssa.gov/foreign/foreign.htm
What is your status?
Q1. I have my SSN.
You are all set to file taxes, get your passport renewed, etc.
Q2. I remember my SSN, but no longer have the card.
This is not a problem unless the you are requested to provide a photocopy of your original card. If called upon to produce one, you can apply for a (free) replacement card, and the Federal Benefits Unit (FBU) for your region can supply you with a letter saying that you have applied for it.
Q3. I used to have one, but I cannot find it and don’t remember the number.
Check first via the Federal Benefits Unit (FBU) serving your region. These can be found listed here: www.ssa.gov/foreign/foreign.htm
The FBU may perhaps confirm if a SSN has been issued to you; however they are not permitted to transmit this number to you, either over the phone or by letter. The procedure in this case is to apply for a replacement card by postal mail using the approprite form. You can leave the space asking for the SSN blank.
Q4. I don’t know if I ever had a Social Security Number. How do I find out?
Check via the Federal Benefits Unit (FBU) serving your area (See:www.ssa.gov/foreign/foreign.htm). With the data you provide them, they can inform you if a number has ever been issued to you.
If you have never been issued a SSN, see information concerning an initial application, below.
If you have been assigned a SSN however, the FBU is not permitted to transmit this number to you over the phone or in written form. The procedure In this case is to apply for a replacement card using the appropriate form. (You can leave blank the space asking for the SSN.)
Q5. How does one apply for a replacement SSN card?
The procedures for applying for a replacement card or making a correction to your data are as follows:
1. Application form and instructions are available at: www.ssa.gov/forms/ss-5.pdf.
2. Complete, date and sign the application.
3. Present one document as acceptable proof of identity. If you are a citizen born outside the US, you must also provide proof of your US citizenship. (Your US passport can fulfill both functions.)
- Original US Passport, must be current and signed;
- Original Permanent Resident Alien Card (“Green Card”), must be current;
- Original US state driver’s license, must be current;
- Original foreign passport is acceptable but must be accompanied by proof of US citizenship, such as a Naturalization certificate or US birth certificate.
4. If the replacement card is for a child, provide proof of identity for both the child and the parent who signs the form.
5. If the name has been altered since the initial application, you must provide official documentation of how the name change(s) was/were effected.
6. The completed application and relevant documents should be mailed to the Federal Benefits Unit serving your region. www.ssa.gov/foreign/foreign.htm
If you have never had a SSN, however, the procedure to obtain a SSN is more complicated and lengthier. See below.
NOTE: A key factor in any initial application for a SSN is the necessity to produce thorough documentation in the original, or in copies certified by the originating institutions; photocopies are not acceptable. The consular sections of American embassies or consulates can also certify original documents. You can find how to obtain certified copies of vital records issued in the US via: www.cdc.gov/nchs/w2w.htm . This can take time to assemble.
Be aware that, while your American passport can serve as one identification document, you must produce two pieces of identification, in addition to any other proofs you must submit.
Q6. I have never had a Social Security Number. How do I get one?
Requirements vary, depending on the age of the applicant (under or over age 12); whether the applicant is a US citizen or not; and, if a US citizen, whether the applicant was born in the US or abroad. An excellent overview can be found at: www.ssa.gov/ssnumber/ss5doc.htm .
Q7. For individuals over 12 years of age applying for an initial SSN:
1. It is essential to appear in person. You will need an appointment, which you can make by email or phone call.
2. You must have two pieces of identification – for example, US passport and your birth certificate.
3. If you were born in the US, you must also prove why you do not already have a SSN. Documentation is required to prove the allegation of absence from the US as the reason for non-assignment of an SSN. The documentation must be comprehensive and dated from the time the person departed the US to the present to provide sufficient evidence. The documentation can include:
- confirmation of residency from foreign registration offices;
- school records such as report cards or a letter from the school confirming dates of attendance;
- travel documents such as current or canceled passports (US or other);
- employment records;
- medical records;
- proof of registration with a doctor or clinic.
4. If you are a US citizen born abroad, only certain documents can be accepted as proof of US citizenship. These include a US passport, Certificate of Naturalization (N-550/N-570) or Certificate of Citizenship (N-560/N-561), Certificate of Report of Birth (DS-1350), Consular Report of Birth Abroad (FS-240, CRBA).
You must also submit documentation to show that you have never been assigned a SSN:
- If you have lived outside the United States for an extended period, a current or previous passport, school and/or employment records, and any other record that would show long-term residence outside the United States could be used to show you do not have a SSN.
- If you have lived in the United States and you are applying for an original Social Security number, you may be asked for information about the schools you attended or to provide copies of tax records that would show you were never assigned a SSN.
Q8. Does my American minor child need a Social Security Number? How can I get one for him/her?
It is normally advised that a US citizen child should obtain a SSN. In the US, the hospital where the child is born will usually apply for a SSN when recording the birth.
A parent can apply on behalf of a child. Note that the parent will also have to prove his/her identity. Children less than 12 years do not have to appear in person as long as there is sufficient proof of identity (see below).
The FBUs can accept only certain documents as proof of US citizenship. These include a Certification of Report of Birth (DS-1350), Consular Report of Birth Abroad (FS-240), US passport or Certificate of Citizenship (N-560/N-561), and Certificate of Naturalization (N-550/N-570).
An acceptable proof of identity document must show your child's name, identifying information and preferably a recent photograph. Your child must be present unless the picture identification also shows your child's biographical information (i.e. age, date of birth, or parents' names). FBUs generally can accept a non-photo identity document if it has enough information to identify the child (such as the child's name and age, date of birth or parents' names). However, they prefer to see the child's US passport.
For further details, including regarding adopted children, refer to: www.ssa.gov/ssnumber/ss5doc.htm .
Q9. How long does it take to get a Social Security number?
The processing time for these applications varies and is in part dependent on the response time from the Office of Vital Statistics which holds the original birth registration. In cases where the client is within time constraints dictated by his/her financial institution, the FBU can issue a letter confirming that an application for an SSN has been duly submitted.
Guidance for obtaining your Social Security Number from Overseas
The Social Security Administration must insure that Social Security Numbers are not issued to individuals intending to use them for fraudulent purposes. This is why the Social Security Administration requires individuals applying for Social Security Numbers for the first time do so in person and to present specific documents attesting to their identity and, for many born outside the United States, proof of their lifetime residency outside the United States.
The following is guidance to help those who are managing the process.
First you must decide, based on where you live, how the application process will be managed. There are two basic options:
1. Make an appointment to visit the Federal Benefits Unit (FBU) office. Contact the office of the FBU at the closest US Embassy or Consulate in your country of residence. It is essential that you contact FBU for an appointment as they will not accept walk-ins. They will be able to tell you in advance the exact documentation you need to provide to process the application. For a complete list of FBU offices see: https://www.ssa.gov/foreign/foreign.htm . This is the best option for expediency as the information given to the FBU is automatically transmitted to the Social Security Administration.
2. Make an appointment to visit to the Embassy/Consulate without an FBU office.
If you are unable to make an appointment at a US Embassy or Consulate with an FBU office, you can still make an appointment to visit your local US Embassy or Consulate to submit an application for your Social Security Number. Be sure to call or write in advance to make an appointment so that the Embassy/Consulate can tell you in advance what documentation you should bring with you. This documentation varies from country to country.
When visiting a Consulate or Embassy without an FBU, you will not be speaking directly with a representative of the FBU, but with Embassy/Consulate staff who will review your application/documentation and will then pass your dossier onto the Social Security Administration. This extra step may result in a delay if the dossier is not complete, or the documentation provided is not acceptable to Social Security. In this case the dossier will be returned to the Embassy/Consulate for correction, i.e. you would be contacted to provide more information or told that the documents you provided were not sufficient.
Helpful steps to track your application:
Similar to many government services, the application for a Social Security number takes time to process. Social Security does its best to expedite the process and understands that many applying from overseas are in immediate need of a number.
Applications made directly to an office of the FBU have the greatest chance of being treated in an expedited manner as they are screened by the appropriate staff at submission and go directly into the Social Security Administration process for application. The individuals at an FBU can determine on sight if the applicant has the appropriate documents needed for the application. It would be rare in this instance for that pplication to be returned for further treatment once submitted.
Applications made at FBU offices:
1. Call/write your local US Embassy or Consulate and make an appointment with the FBU for application for a Social Security number.
2. You will receive a letter confirming you appointment and telling you what documents to bring with you.
3. Keep this letter and bring it with you to the appointment as it will have information as to the person/office dealing with your case.
4. Submit documents (including application form: https://www.ssa.gov/forms/ss-5fs.pdf) and request a contact phone number/email for the person treating your dossier.
5. For applications made at an FBU, processing time can vary from several week to several months.
Applications made at Consulate/Embassies without an FBU office:
1. Call/write your local US Embassy or Consulate/and make an appointment to come in to apply for a Social Security number.
2. Request information on what documents are needed to be presented.
3. Present documents (including application form: https://www.ssa.gov/forms/ss-5fs.pdf) to Embassy/Consulate staff and request a contact phone number/email for the person treating your dossier.
4. Applications made at Consulate/Embassies will take longer than those at FBU offices.
General Guideline for documents needed to present for application:
For more complete information on Social Security, application forms and information on documentation, please visit: https://www.ssa.gov/foreign/
Publications and Resources
Additionally, inquiries or documentation can also be sent to the Division of International Operations in Baltimore. This for individuals that do not want to send it to the PO box (such as by FedEx or UPS), the address would be:
Division of International Operations
Social Security Administration
6100 Wabash Ave
Baltimore MD USA 21215
Totalization Agreements: A quick review
One of the many issues facing Americans working abroad is mitigating double taxation. With “normal” taxes, there are tools such as the foreign earned income exclusion or foreign tax credits. For freelancers or self-employed taxpayers, there is another category called payroll taxes. Payroll taxes include social security and Medicare and are around 15.3%. Taxpayers may be in for an unfortunate surprise come filing time, to find out that the normal foreign exclusion/credits cannot be applied to payroll taxes. The best way to avoid them is through International Social Security treaties that the Social Security Administration has called “Totalization Agreements”.
Totalization Agreements recognize that self-employed people working abroad may be paying into the social security program in their country of residence. Paying the non-progressive 15.3% to the US, on top of paying the equivalent in their resident country, can be punitive. For example, a taxpayer living in a country without a Totalization Agreement earning $100,000, paying 25% on “normal” income, and 10% on their self-employment income will pay $15,300 more than their counterpart living in a country with a Totalization Agreement. This example is illustrated below.
The punitive cost of a non-Totalization Agreement country will always be the total self-employment payroll taxes paid to the US. The social security administration themselves show that it can result in 65-70% effective tax rates. If your resident country has no social security program or you do not pay into it, there is no punitive cost. This can be reduced by claiming a deduction for half of the self-employment taxes, which is beneficial if the foreign exclusion/credit has not resulted in no tax due. The payroll taxes comprise of three things:
- 2% of social security on the first $147,000 of income (2022, indexed annually)
- 45% of Medicare taxes (unlimited)
- 9% of additional Medicare taxes on earnings in excess of $125,00-$250,000 (depending on your filing status)
- Number 1 and 2 are doubled to count the employee and the employer’s contribution, resulting in the 15.3% mentioned above
There are 30 countries that have a Totalization Agreement with the US, listed below. The Social Security Administration is working behind the scenes to get more agreements with more countries, so if yours is not on the list, please keep an eye out. Slovenia and Iceland were both added in 2019.
· Czech Republic
· Slovak Republic
· South Korea
· United Kingdom
If you live/work in one of the countries above and have self-employment income, make sure to have a conversation with your tax preparer/consultant. The logistics of claiming an exemption on your tax return are simple. First, you should have a statement that says “Exempt” on Line 4 of Schedule 2 (2020). Second, a sentence or two should be added in a supplemental attachment elaborating on the exemption. A treaty-based position (Form 8833) is not necessary.
It’s not all bad, however, as paying into the US social security system has its advantages. There are a few upsides for those living/working in a country that does not have a Totalization Agreement with the US.
- It reduces the necessary credits to qualify for social security. Normal recipients need 10 years (or 40 quarterly credits) to qualify. With Totalization Agreements in play, taxpayers can qualify with less than the 40 credits.
- Paying into the US’ system will increase your eventual social security benefits from there. However, Medicare does not provide coverage for foreign health care.
- For married social security recipients, spouses can continue getting benefits upon death of the original recipient.
- The higher benefits also will lower the reduction from the Windfall Elimination Provision—a provision that reduces your social security benefits by a certain amount based on the amount you receive from the other country.
- The US allows for a deduction of half of the payroll taxes (7.65%). Depending on the circumstances of the taxpayer, this deduction may or may not result in ultimate tax savings.
Another potential exception is exploring if you are a common-law employee from the US’ perspective with your tax preparer/consultant. Common law employees are not subject to self-employment taxes. However, they are not allowed any deductions from their gross income.
Regardless of where you live, if you’ve ever paid into the US’ social security system and/or are planning to get some US social security benefits, taxpayers should monitor their annual social security statement through their ssa.gov account. All the information provided herein is general, and each person’s specific circumstances should be considered before making social security-related decisions.