Under international social security agreements, the general rule is that an employee who would otherwise be covered by both the U.S. and a foreign social security system is subject exclusively to the coverage laws of the country in which the employee is working. However, under an exception (called the “detached worker exception”), a person who is temporarily transferred to work for the same employer in another country remains covered only by the country from which he or she has been sent.

In U.S. agreements, this detached worker rule generally applies only if the employee’s assignment to another country is expected to last 5 years or less. If the transferred employee works for a foreign affiliate of its U.S. employer, the U.S. employer may enter into a Code Sec. 3121(l) agreement with the U.S. Treasury Department with respect to the foreign affiliate to extend coverage of the U.S. Social Security system to services performed outside the U.S. by its U.S. citizen or resident employees. Under this voluntary agreement, the U.S. employer pays an amount equivalent to both the employee and employer’s shares of FICA on the wages paid for services covered by the agreement.

However, in a Chief Counsel Advisory the IRS concluded that where a U.S. citizen was permanently transferred to work in a foreign country by his U.S. employer, the U.S. citizen’s wages were only subject to the foreign social security taxes and should not be subject to U.S. social security taxes, even if a Code Sec. 3121(l) agreement was entered into with respect to the worker. The reasoning for this position is that the detached worker rule only applies if the employee was transferred to work in a foreign country for five years or less. (CCA 201214023)

The tax court denied an income earned abroad exclusion to an individual working in Iraq in a "walled compound" who leased out his California home while his former spouse and children lived in his Nevada home, the court noting that his abode remained in the U.S where he kept his car and bank accounts. (Domdom v. Commissioner, TC Summary Opinion 2022-17)

The Tax Court determined that an individual who met the 330-in-365 days abroad test had his tax home in Saudi Arabia where he worked under a U.S. government contract, concluding that he had significant community involvement and stronger ties to Saudi Arabia than he did to the United States. (Morgan v. Commissioner, TC Summary Opinion 2022-10)