Generally, US citizens and resident aliens are required to pay Social Security tax on their worldwide income, including foreign income. However, there are certain exceptions or exclusions available for individuals who meet specific criteria and have limited income from foreign sources.
More comprehensive response question
US citizens and resident aliens are generally required to pay Social Security tax on their worldwide income, including income earned from foreign sources. This means that if you are a US citizen or a resident alien working abroad and earning income, you may be subject to Social Security tax. However, there are certain exceptions and exclusions available for individuals who meet specific criteria and have limited income from foreign sources.
It’s important to note that while you may be required to pay Social Security tax on your foreign income, the United States has entered into bilateral Social Security agreements with some countries to prevent double taxation and to provide certain benefits to individuals working in those countries. These agreements, also known as Totalization Agreements, determine the coverage and taxation of Social Security benefits between the US and the other country.
In certain cases, individuals who pay into the social security system of a foreign country may be eligible for exemption or a reduction in Social Security tax. This can be advantageous for individuals living and working in countries where the tax rates are high, as they may be able to avoid double taxation.
To determine your specific situation and obligations, it is recommended to consult with a tax professional or the Social Security Administration. They will be able to provide you with accurate and up-to-date information based on your individual circumstances.
Quote: “The hardest thing in the world to understand is the income tax.” – Albert Einstein
Interesting facts about Social Security tax on foreign income:
- The United States has Social Security Totalization Agreements with over 30 countries, including Canada, France, Germany, and the United Kingdom.
- These agreements aim to ensure that individuals working abroad are not subject to double taxation and are able to receive Social Security benefits based on their combined work history.
- In some cases, individuals may be eligible for a foreign earned income exclusion, which allows them to exclude a certain amount of their income earned abroad from US taxation.
- Self-employed individuals working abroad may need to pay self-employment tax, which includes both Social Security tax and Medicare tax.
- It’s important to keep detailed records of your foreign income, as well as any taxes paid to foreign countries, to properly report and potentially claim any available deductions or credits.
Table:
| Country | Totalization Agreement |
|---|---|
| Canada | Yes |
| France | Yes |
| Germany | Yes |
| United Kingdom | Yes |
| Australia | No |
| China | No |
| India | No |
Please note that this table is for illustrative purposes only and may not represent the current status of Totalization Agreements. It is always best to consult official sources or a tax professional for the most accurate and up-to-date information.
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If your employer hired you to work in an agreement country, you generally will pay social security taxes only to that country. This also applies if you are in a country to work for more than five years. You will be exempt from paying U.S. Social Security taxes1.
If IRS considers you to be a foreign person (or nonresident alien) for tax purposes, SSA is required to withhold a 30 percent flat income tax from 85 percent of your Social Security retirement, survivors, or disability benefits. This results in a withholding of 25.5 percent of your monthly benefit.
Individuals employed within the United States by a foreign employer are generally subject to Social Security and Medicare tax withholding by the foreign employer.
For US expat retirees, determining the US income tax rules regarding foreign (non-US) social security benefits is a common concern. While your foreign country of residence may provide an income tax exemption for its social security benefits, US domestic law is clear that foreign social security payments are in fact fully subject to US income tax.
Wages paid to nonresident aliens employed within the United States by an American or foreign employer, in general, are subject to Social Security/Medicare taxes for services performed by them within the United States, with certain exceptions based on their nonimmigrant status.
See related video
In this YouTube video titled “Do You Have To Pay Tax On Your Social Security Benefits?” the speaker explains that social security benefits are taxable and the amount of benefits that are taxable varies based on income and marital status. The speaker also highlights that only four states tax social security benefits at the federal level. They provide recommendations for taxpayers, such as setting up automatic withholding from their social security payments to avoid penalties for not remitting taxes on time. The speaker also discusses the earned income penalty for those who turn on their social security benefits before their normal retirement age and advises caution for individuals expecting to earn income above the threshold, as their benefits may be reduced or taken back by the IRS.