The U.s. Has Totalization Agreements With 26 Countries

April 13th, 2021

The agreement is the second to enter into force since the 3.8% tax on unearned income, known as the Net Investment Tax (NIIT), came into force. However, NIIT is not part of FICA3 and is not covered by the social security totalization agreements in force on the date it came into force. Double social security is a widespread problem for U.S. multinationals and their employees, since the U.S. Social Security program covers foreign workers – who arrive in the U.S. and go abroad – to a greater extent than the programs of most other countries. U.S. Social Security covers U.S. nationals and non-resident aliens who are employed by U.S. employers abroad, regardless of the duration of an employee`s intervention abroad, even if the employee was recruited abroad. This extraterritorial coverage in the United States often results in double tax debt for employers and workers, since most countries generally receive social security contributions for all those who work in their territory.

Despite the fact that the agreements aim to allocate social security to the country where the worker is most attached, unusual situations occasionally arise, where strict enforcement of the rules of agreement would result in unusual or unjustified results. For this reason, each agreement contains a provision allowing the authorities of both countries to grant exemptions from the normal rules if both parties agree. An exception could be granted, for example, if the foreign award of a U.S. citizen was unexpectedly extended by a few months beyond the 5-year limit under the self-employed rule. In this case, the worker could benefit from ongoing U.S. coverage for the additional period. Totaling partner countries also calculate a proportional benefit when a worker`s coverage periods in the United States must be added to their national insurance coverage to determine the partner country`s entitlement to benefits, but methods for calculating theoretical benefits vary widely. However, partner countries use a fairly uniform pro calculation, slightly different from the U.S. formula: workers who have shared their careers between the United States and a foreign country are sometimes not entitled to pension, survival or disability (pensions) benefits from a country or both because they have not worked long or recently to meet their minimum entitlements. Under an agreement, these workers may benefit from partially U.S. or foreign benefits on the basis of combined or “totalized” coverage credits from both countries. The United States has agreements with several nations, the so-called totalization conventions, in order to avoid double taxation of income in relation to social contributions.

These agreements must be taken into account in determining whether a foreigner is subject to the U.S. Social Security Tax/Medicare or whether a U.S. citizen or resident alien is subject to the social security taxes of a foreign country. International social security agreements, often referred to as “totalization agreements,” have two main objectives. First, they remove the double taxation of social security, the situation that occurs when a worker from one country works in another country and is required to pay social security taxes to the two countries with the same incomes.

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