Since the late 1970s, the United States has established a network of bilateral social security agreements that coordinate the U.S. social security program with similar programs in other countries. This article provides a brief overview of the agreements and should be of particular interest to multinationals and people who work abroad during their careers. This document discusses the strengths of the agreement and how it can help you work and apply for benefits. Any agreement (with the exception of the agreement with Italy) provides an exception to the territorial rule, which aims to minimize disruptions in the career of workers whose employers temporarily send abroad. Under this exception for „self-employed workers,“ a person temporarily transferred to work for the same employer in another country is covered only by the country from which he or she was seconded. A U.S. citizen or resident, for example, who is temporarily transferred by a U.S. employer to work in a contract country, remains covered by the U.S. program and is exempt from host country coverage. The worker and employer only pay contributions to the U.S.
program. The Data Protection Act requires us to inform you that we are entitled to collect this information until Section 233 of the Social Security Act. Although it is not mandatory for you to provide the information to the Social Security Administration (SSA), a coverage certificate can only be issued if an application has been received. The information is necessary to enable the SSA to determine whether, in accordance with an international agreement, the work should only be covered by the U.S. social security system. Without the certificate, work can be taxed in both the United States and foreign social security schemes. The problem with this regulation is that many foreign countries also require individuals to rate their social security systems to cover the benefits that individuals can receive there throughout their lives. This means that many expats are doubly taxed because they rate both their host country`s social security program and U.S. social security.
To address this problem of double taxation, the United States has entered into agreements with several countries to determine the social security system in which an expatriate participates. The agreements also have a positive effect on the profitability and competitive position of companies operating abroad by reducing their business costs abroad. Companies with staff stationed abroad are encouraged to use these agreements to reduce their tax burden. As in the article of the IRS Social Security Tax Consequences of Working Abroad, „As part of a totalization agreement, double coverage and double dues (taxes) are eliminated for the same work. Agreements usually ensure that you only pay social security contributions to one country. As a precautionary measure, it should be noted that the derogation is relatively rare and is invoked only in mandatory cases. There are no plans to give workers or employers the freedom to regularly choose coverage that contradicts normal contractual rules.