The Most Comprehensive Guide to Social Security Tax for Expats

document titled "SOCIAL SECURITY TAX"

Most people can agree that taxes can be a complicated subject that one has to sort out every year. This is especially the case for expats who aren’t too familiar with local laws and requirements.

Depending on where you live and what your current situation is, the process of tax filing may differ from those of other people.

Since the conditions can vary from expat to expat, it is vital to know what steps or rules apply to you. For one, Social Security tax doesn’t always necessarily apply to all your income, and for certain nationalities, you may not need to worry about it at all. The only way to know for sure is to get a better grasp on the subject and determine in which category you belong.

Reviewing the basics is always a good place to start. This can help you clear up any misunderstandings or questions you may have while you go through the process. It can also be one of the best ways to make your life abroad a little bit easier.

What is Social Security?

Social Security is a type of federal program where the U.S. government provides monthly cash benefits for citizens who are disabled, are retired, or have deceased family members. The main purpose of building the program is to help ease long-range economic problems among the beneficiaries for better financial security.

Social Security services provide benefits that can cover retirement, disabilities, or a lump sum for death payments. But to be eligible for these in the future, you need to be employed under companies or groups that are covered by social security. You also need to be eligible for other requirements like a minimum of 40 earnings credits and the minimum age of 62 years or older before you can claim your Social Security benefits.

You can still claim your social security benefits if you’re an expat who wants to retire abroad as long as you meet the requirements. These include making a minimum contribution of 10 years during your covered employment to the social security system. But depending on your status at the time, you might also be subject to social security tax in the country where you reside.

Social Security for Expats

You may have a lot of questions about how you can claim your Social Security benefits properly. Here are some of the most frequently asked questions about this topic.

  •  Do expats need to pay Social Security tax?

    Tax exemption can vary depending on your current situation. Factors like whether you work for a U.S. employer or are self-employed determine whether you need to continue paying Social Security tax or if you can be exempted from it.

  • Who needs to pay Social Security tax?

    If you are an expat working for a foreign company, you will be under foreign social security laws. That is you won’t need to pay any additional Social Security tax to the U.S. But if you are a self-employed individual, you’ll need to pay the self-employment tax (social security and Medicare taxes).

    Other exemptions can also be granted if you work for a U.S. company located in a country that has a totalization agreement with the U.S. But you have to prove that you have a closer connection to the foreign country and will pay into its social security program by obtaining a Certificate of Coverage and submitting it with your tax return.

  • What happens when expats don’t pay Social Security tax?

    In most cases, making Social Security payments is mandatory since all U.S. employers must automatically deduct this from your paycheck. The payments you make pile together and contribute to your coverage. But if this doesn’t happen, you can lose eligibility to claim your benefits in the future.

  • I’m already paying for social security in my residing country. Do I still need to pay Social Security tax in the U.S.?

    No. If you are a U.S. citizen employed abroad in a listed country that is under a totalization agreement, you may qualify for an exemption to pay Social Security taxes to the U.S. But if there is no agreement between the two countries, you’ll have to pay Social Security taxes for both.

  • Can I get my Social Security benefits even if I’m living outside the U.S.?

    Yes. If you’re a U.S. citizen and meet all other requirements to qualify for Social Security benefits, you can receive your payments while living abroad. But this is limited to a list of countries that are eligible to receive payments if you are not a U.S. citizen.

    If you are a citizen of any of these countries, you can receive your payments so long as you are outside of U.S. territories. You may also check the list of countries that have a Social Security agreement with the U.S.

  • Can I opt out of paying Social Security tax?

    No. Currently, there is no way for you to legally stop paying for Social Security tax unless you have an exemption status from the IRS. To do this, you will either need to apply for an exemption and get your request approved by the IRS or be a part of a group that is already exempt.

  • Can foreign spouses receive Social Security benefits?

    Yes. In most cases, your foreign spouse can qualify for Social Security survivor benefits. This is equivalent to half of the deceased worker’s full benefits upon the taxpayer’s passing. But before they can claim this, they should meet the standard requirements for eligibility.

Double Taxation: What Is It and How Can Expats Avoid It

Double taxation happens when you pay income tax twice from the same source. This can happen if your income tax is taken from both a corporate and personal level. But it can also happen with international trades and investments where both countries taxed you.

Expats living and working abroad are more likely to face double taxation since U.S. citizens are required to report their foreign income to the IRS. But this doesn’t exempt you from paying social security taxes in the country of your residence. Luckily, there are a few methods you can use to avoid this problem such as totalization agreements.

Totalization Agreements

Totalization agreements help U.S. citizens avoid double taxation on income concerning Social Security tax through a unified consensus with other countries. This helps both taxpayers and tax agencies to figure out if a person needs to pay social security tax to a foreign country. Currently, these are the only countries that have a totalization agreement with the U.S.

  • Australia
  • Austria
  • Belgium
  • Brazil
  • Canada
  • Chile
  • Czech Republic
  • Denmark
  • Finland
  • France
  • Germany
  • Greece
  • Hungary
  • Iceland
  • Ireland
  • Italy
  • Japan
  • Luxembourg
  • Netherlands
  • Norway
  • Poland
  • Portugal
  • Slovak Republic
  • Slovenia
  • South Korea
  • Spain
  • Sweden
  • Switzerland
  • United Kingdom
  • Uruguay

If a non-U.S. citizen wants to be exempt from paying U.S. Social Security and Medicare taxes because of the totalization agreement, they’ll need to get a Certificate of Coverage from the social security agency in their home country. Having this certification will tell U.S. employers that they don’t need to have salary deductions to cover social security tax expenses.

If you want to make the most out of your Social Security benefits, the totalization agreement can show you which countries can and cannot receive your Social Security payments. There can be different levels of restrictions where payments can be limited or totally restricted.

Tools to Help Expats with Social Security Tax Filing

Modern technological advancement has provided expats with many tools to handle their taxes. Not only can these tools make it easier for you to process your taxes but they bring more convenience to the table, too. Here are some of our recommendations.

1. Payments Abroad Screening Tool

This tax tool can help find out if your Social Security payments will keep going indefinitely or stop after a given time. It can also show you any country-specific restrictions you need to be aware of.

2. Nonresident Alien Tax Screening Tool

The built-in tool on this website can help you figure out if a social security administration (SSA) should withhold your tax that comes from the benefits payable to you. But this is only the case if you’re a non-resident alien getting retirement, survivor, or disability benefits.

3. Windfall Elimination Provision (WEP) Tool

The WEP tool can change the way your Social Security benefits are calculated by reducing your retirement or disability benefits if you receive a pension from your work. This can apply if you did not pay any Social Security taxes on a specific income.

Tax Smart with Tax Samaritan

Handling your taxes as an expat can be an overwhelming process if you are unfamiliar with which rules to follow. If you file them without understanding your situation, you run the risk of legal trouble or double taxation.

Luckily, Tax Samaritan can help you maximize your Social Security benefits by providing you with professional-quality tax preparation services perfect for expats. Our team of experts is ready to help you at any time. Get a Free Tax Quote today to get a feel of our services.

All About Randall Brody
Randall is the Founder of Tax Samaritan, a boutique firm specializing in the preparation of taxes and the resolution of tax problems for Americans living abroad, as well as the other unique tax issues that apply to taxpayers. Here, they help taxpayers save money on their tax returns.

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