Do you know how totalization agreements affect your tax bills?
Totalization agreements are basically international social security agreements. The US has signed these agreements with different international countries having similar social security programs. The main idea behind the agreements is better coordination of United States’ own social security program for its citizens working around the world.
The totalization agreements are taken into account when a resident alien is deemed to pay US social security taxes and when social security taxes of a foreign county are imposed on a US expat.
Below are the names of 24 countries that have totalization agreements with US in effect:
- Australia
- Austria
- Belgium
- Canada
- Czech Republic
- Chile
- Denmark
- Finland
- France
- Germany
- Greece
- Ireland
- Italy
- Japan
- Luxembourg
- Netherlands
- Norway
- Poland
- Portugal
- South Korea
- Spain
- Sweden
- Switzerland
- United Kingdom
Purpose of totalization agreements
Totalization agreements are designed to benefit US citizens when they go abroad for work. These agreements essentially waive the situation of a US citizen having to pay social security taxes to two countries on a single income, as it eliminates double social security taxation. There’s more to it; such agreements are a smart way through which countries intend to provide complete benefit protection to their workers who have careers that are split between two countries.
According to the totalization agreements, workers who receive social security benefits from both the US and the alien social system will be liable to abide by the coverage laws of only the alien country where they work.
Thus, under the totalization agreement, if you are eligible for coverage under both the U.S. and a foreign social system, you will be subject only to the coverage laws of the country where you work.
Can it help if you work for a US company abroad?
You can be liable to pay social taxes to US, as well as the foreign country you work in, because several countries tend to impose social security taxes on those people who work there. However, you will be able to benefit and not pay dual taxes, if the foreign country has a totalization agreement with the US.
If a US citizen is a resident alien in a country that has a totalization agreement with the US and works for a country of US origin, then the citizen is supposed to make social security payments to the US social security system. Moreover, several foreign American affiliated companies have a policy of providing social security coverage for resident aliens employed by them. Many countries require workers who work there to pay a social tax as well on the other hand.
Temporary visit to a country with a totalization agreement
Generally, if you are sent by your employer to work abroad for a few years, you will be covered by your home country. However, some countries have different rules, so make sure you check up on your particular country carefully to determine the country you should pay your social tax to.
This means a US expat in a foreign country that has a totalization agreement with the US will continue to be covered by the US social security system. Hence, they won’t receive coverage from the foreign country’s social security system.
Did this article help clear your confusion regarding international social security agreements? Please let us know in the comment box below. Also, feel free to contact us if you have any queries regarding your social security taxes.
