Do US Expats Have to Pay Social Security Tax?

Do US Expats Have to Pay Social Security Tax?

Income tax isn’t the only type of tax American expatriates have to worry about.  Social Security tax, or taxes which employees and employers pay toward Social Security programs administered by the Social Security Administration (SSA), is another important tax liability for US expats to consider.  If you’re a US citizen or resident abroad – or are planning on becoming one – you should understand how FICA taxes might affect you.

Do American Expats Pay Into Social Security?

The technical term for Social Security tax is FICA, which stands for the Federal Insurance Contributions Act.  FICA is a form of payroll tax imposed on both workers and business owners, including self-employed persons (such as sole proprietorships).  FICA taxes go toward funding Social Security programs, such as Medicare and OASDI (Old-Age, Survivors, and Disability Insurance).  Together, these programs award benefits to eligible persons such as disabled individuals, retirees, and children.

If you work for a foreign company (including your own) and follow foreign Social Security laws, you are not required to pay additional US Social Security tax.

If you are self-employed, you are subject to Self-Employment Tax (Social Security and Medicare Tax) and must report income and expenses on Schedule C (Form 1040).  (On a side note, Schedule C forms are well known as red flags for IRS audits.  You should contact an experienced CPA right away if you have received an IRS tax audit notice.)

If you work for a US company in a country which has entered into a Totalization Agreement with the United States, you can potentially avoid having earnings withheld if you can prove that (1) you have a “closer connection to a foreign country,” and (2) you pay into that country’s Social Security system.

You can establish a closer connection to a foreign country if you meet the following IRS criteria:

  • You spend fewer than 183 days (182 days or less) in the US during the year.
  • You also have a tax home in another country during the year.
  • During that year, you have a closer connection to the foreign country (where you have a tax home) than to the US.
    • This is determined based on factors like where you live, where your family lives, and which forms you have filed with the IRS (e.g. Form W-9, Request for Taxpayer Identification Number and Certification).

In some instances, taxpayers can prove a closer connection to two foreign countries.  (Note that two is the absolute maximum and may not be exceeded).  Unsurprisingly, the requirements to establish a such a connection are more demanding.

So what are Totalization Agreements?

us expatriation tax

Which Countries Have Totalization Agreements with the United States?

Over the past few decades, the United States has continued to enter bilateral Social Security agreements with more and more foreign countries.  These bilateral agreements, which are known as Totalization Agreements, serve two key purposes.

  • They help international taxpayers avoid Social Security double-taxation on the same earnings.
  • They help make sure that international workers are covered in terms of receiving benefits.

Many, but not all, of the countries with which the US has Totalization Agreements are located in Europe.  As of July, 2015, the United States has entered into Totalization Agreements with the countries listed below:

  • Australia
  • Austria
  • Belgium
  • Canada
  • Czech Republic
  • Chile
  • Denmark
  • Finland
  • France
  • Germany
  • Greece
  • Ireland
  • Italy
  • Japan
  • Luxembourg
  • Netherlands
  • Norway
  • Poland
  • Portugal
  • Slovak Republic
  • South Korea
  • Spain
  • Sweden
  • Switzerland
  • United Kingdom (UK)

If you have questions about Totalization Agreements, you can contact the IRS and/or the SSA for additional information.  SSA inquiries should be directed to the SSA Office of International Operations.  You can contact the IRS by writing to the following address:

U.S. Social Security Administration
Office of International Programs
P.O. Box 17741
Baltimore, MD 21235-7775

However, you should also consult with a CPA for help understanding your tax liabilities as a US expat.  The IRS and SSA can provide general information to help point you in the right direction, but will not be able to ensure your compliance with the Internal Revenue Code based on your personal tax situation.  Only a CPA can sit down with you to review your specific filing requirements and tax liabilities in detail.

If you’re a US expat and need help understanding your Social Security tax liabilities, or if you’re planning to move out of the country and want to get your taxes straightened out before you depart, call CPA Ted Kleinman at (800) 810-9312 for a free consultation.  US Tax Help serves expatriates living in countries around the globe.