Totalization Agreements: What do they mean?

International Social Security agreements (often called 'Totalization agreements) have two main purposes:

  1. They eliminate double taxation on Social Security which is the situation that occurs when a worker from one country works in another country and is required to pay Social Security taxes to both countries on the same earnings. Note: if your return is filed properly, you will not be required to pay self-employment taxes in both countries and will avoid double taxation.
  2. They help to protect the benefits of workers who have chosen to divide their careers between the United States and another country.

Under a Totalization Agreement, if a worker has some U.S. coverage but not enough to qualify for benefits, SSA will count periods of coverage that the worker has earned under the Social Security program of an agreement country to fill the gap.

In the same way, a country party to an agreement with the United States will take into account a worker's coverage under the U.S. Social Security program to that the worker may qualify for that country's Social Security benefits.

My country of residence doesn’t have a Totalization Agreement with the U.S.  Will my contributions to the Social Security program in my country of residence count against my U.S. self-employment taxes?

If you pay social security contributions to a country that doesn't have a Totalization Agreement with the US, those contributions will NOT count against your U.S. self-employment taxes. However, you can list foreign Social Security payments as a foreign tax credit on your U.S. tax return.

My country of residence doesn’t have a Totalization Agreement with the U.S. How do I earn U.S. Social Security credits?

A U.S. person residing in a country that does not have a Social Security Totalization Agreement can only earn US Social Security credits if they are self-employed. Because there is no Totalization Agreement, even if you pay into your local country’s Social Security system, these contributions cannot be transferred into U.S. Social Security credits.

Therefore, if you are employed by a foreign employer yet have elected to contribute to the U.S. Social Security system, you may report your wages as "Other Self-Employment income reported as wages on line 7 of Form 1040" and you will be required to pay 15.3% of the amount on line 57 of Form 1040 as Self-Employment tax.

However, in exchange for paying this added tax, you will generate US Social Security credits.

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