No, you do not pay Social Security tax on foreign earned income.
Detailed responses to the query
No, you do not pay Social Security tax on foreign earned income. According to the Internal Revenue Service (IRS) of the United States, “If you are working for a foreign employer, your earnings are generally not subject to Social Security and Medicare taxes.” This means that individuals who earn income abroad are typically exempt from paying Social Security tax, which is typically withheld from the wages of US workers to fund the Social Security program.
One interesting fact to note is that this exemption from Social Security tax on foreign earned income is granted under the provisions of the Federal Insurance Contributions Act (FICA). FICA governs the tax withholding for Social Security and Medicare, and it specifically excludes foreign earned income from its scope. This exemption helps avoid double taxation for US citizens and residents who work overseas.
Additionally, it’s important to understand that while Social Security tax may not be applicable, US citizens and residents who work abroad may still be subject to income tax on their foreign earned income. This income is reported on the individual’s US tax return using Form 1040, and various exclusions and deductions may apply to reduce the taxable amount.
To provide a comprehensive overview, here is a table summarizing the key points related to the Social Security tax on foreign earned income:
| Point | Explanation |
|---|---|
| Social Security tax on foreign earned income | No, you do not pay Social Security tax on foreign earned income. |
| Applicability | This exemption applies to individuals working for a foreign employer. |
| Legal basis | The exemption is granted under the provisions of the Federal Insurance Contributions Act (FICA). |
| Avoiding double taxation | This exemption helps avoid double taxation for US citizens and residents working overseas. |
| Reporting foreign earned income | US citizens and residents must still report their foreign earned income on their US tax return (Form 1040), although exclusions and deductions may apply to reduce the taxable amount. |
| Other tax obligations | Along with the Social Security tax exemption, it’s important to note that individuals may still have other tax obligations, such as income tax, in both the foreign country where they work and the United States. |
To quote the famous American investor Warren Buffett, he once said, “Income tax returns are the most imaginative fiction being written today.” This humorous remark highlights the complexities and nuances of tax laws, including the exemptions and obligations related to foreign earned income.
Please note that it is always advisable to consult a tax professional or the IRS for the most up-to-date and accurate information regarding individual tax obligations.
A visual response to the word “Do you pay Social Security tax on foreign earned income?”
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.
On the Internet, there are additional viewpoints
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 you are a foreign person (or nonresident alien) for tax purposes, the Social Security Administration (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. 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. Resident aliens employed within the United States by an American or foreign employer are subject to Social Security/Medicare taxes under the same rules that apply to U.S. citizens.
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.
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 resident aliens employed within the United States by an American or foreign employer are subject to Social Security/Medicare taxes under the same rules that apply to U.S. citizens.
In general, aliens performing services in the United States as employees are liable for U.S. Social Security and Medicare taxes. However, certain classes of foreign employees are exempt from U.S. Social Security and Medicare taxes. Resident aliens, in general, have the same liability for Social Security and Medicare Taxes that U.S. Citizens have.