Expat Taxes

How Do Totalization Agreements Affect Expat Americans Living Abroad

by
Lee Reams II
on
7/23/2018
How Do Totalization Agreements Affect Expat Americans Living Abroad

Living and working abroad offers a wide range of cultural benefits, but it can also come with tax headaches. If you’re an American who is living overseas, there are certain steps you need to take to make sure that you aren’t subject to taxation from both the United States and your country of residence, whether you’re there for a short period of time or plan to remain abroad permanently. Social Security liability is of specific concern. Fortunately, the United States has collaborated with a long list of countries in the creation of Totalization Agreements that prevent double taxation.

Whether you are working in another country because your employer has sent you on a long-term international assignment or because you were hired by a foreign employer, both you and your employer will need to make sure that you are in compliance with U.S. Social Security requirements, as well as the national social security requirements that are in place in your new country of residence. If you are in one of the following countries, the existence of Totalization Agreements will make things much simpler for you.

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

Totalization Agreements Avoid Double Taxation

Totalization Agreements have specifically been created to allow U.S. citizens who are living and working overseas for the short term to limit their social security taxation of income to American requirements and those who are planning on remaining in the foreign country to limit their social security taxation to the requirements of the country in which they are living. The definition of short-term is generally defined as five years or less.

The Employer’s Role

If a company has hired an employee for a short-term overseas assignment, it is their responsibility employer to contact the Social Security Administration’s Office of International Programs to obtain a certification of compliance and attest to the individual’s exemption from the social security tax of the nation in which the employee will be residing. If the company has hired an employee who intends to remain in the foreign country, the form should indicate that, in which case the employee’s compensation will not be subject to U.S. Social Security taxation. The employer also needs to contact the foreign country’s authorized agency for a declaration certifying that that nation’s social security tax will be deducted from the employee’s income.

Requirements for Americans who Are Self Employed and Living Abroad

Under U.S. tax law, self-employed Americans are required to pay taxes equivalent to the same Medicare tax and Social Security tax normally withheld by an employer, as long as their net earnings are $400 or more per year. This is true for those living abroad as well.

To ensure that all paperwork is properly completed and Americans working in foreign countries are being taxed properly, employers should correspond to the U.S. Social Security Administration using the following address:

U.S. Social Security Administration

Office of International Programs

P.O. Box 17741

Baltimore, MD 21235-7775

If you are an employee or self-employed individual who wants to make sure that all of your tax obligations have been properly addressed, contact an expat tax professional.

Lee Reams II, writes for TaxBuzz, a tax news and advice website. Reach him at [email protected] or on LinkedIn.  

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Lee Reams II

Lee Reams II

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I am a tax and business news junkie who has spent the last 20 years developing and executing "best in class" word-of-mouth marketing campaigns for tax and accounting professionals. With TaxBuzz and CountingWorks we have taken that same commitment to quality content directly to the consumer. Keeping you up-to-date with the latest tax law changes, business growth tips and planning strategies to help you reach your best financial outcome.

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