Four new social security “totalization” agreements have recently entered into force between the United States and four countries: with Brazil on 1 October 2018 [83 F.R. 52298], with Iceland on 1 March 2019, with Slovenia on 1 February 2019 [83 F.R. 64631], and with Uruguay on 1 November 2018 [83 F.R. 53936].
Totalization agreements relieve U.S. workers and their employers from the burden of contributing to the social security systems of two countries. Under these agreements, U.S. employers and employees contribute to either the U.S. or foreign social security system, but not both, depending on how long they are in the country where they are working.
Under these agreements, a worker who is sent by an employer in one country to work in the other country for five or fewer years remains covered only by the sending country. The agreements include additional rules that eliminate dual coverage in other work situations (e.g., airline and maritime workers). The agreements also help to eliminate situations where workers suffer a loss of benefit rights because they have divided their careers between the two countries.
One Agreement Awaiting Approval
There is one totalization agreement still awaiting approval.
- Mexico. A totalization agreement between the United States and Mexico, signed on June 29, 2004, is still awaiting review by the U.S. Congress and approval by the Mexican Senate before it can take effect.
30 Agreements Now in Effect
As of 1 March 2019, the United States has totalization agreements in effect with 30 countries—Australia, Austria, Belgium, Brazil, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, Slovenia, South Korea, Spain, Sweden, Switzerland, the United Kingdom, and Uruguay.
Benefits Under a Totalization Agreement
Temporary foreign assignment. Under a totalization agreement, expatriate employees working “temporarily” in the foreign country are subject to U.S. social security and Medicare taxes only, to the same extent their compensation would be subject to those taxes had they remained in the United States. On the other hand, wages earned by employees working “permanently” in the foreign country are subject only to the foreign country’s social security taxes.
Under all but one of the agreements currently in force, a “temporary” assignment can last no more than five years. The agreement with Italy allows temporary assignments to run for an indefinite period of time.
Establishing exemption from foreign tax. To establish that an employee’s wages are subject to U.S. social security and Medicare taxes but are exempt from foreign social security tax, the employer must get a “Certificate of U.S. Coverage” from the SSA. To establish that a foreign employee’s wages are exempt from U.S. social security and Medicare taxes under a totalization agreement, the employee or the employer should get a statement from an authorized social security official or agency of the foreign country.
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Jyme Mariani, Esq., is Managing Editor of the American Payroll Association’s Payroll Currently and Payroll Information Resources for the APA.