What is Social Security tax? An essential guide for expats and self-employed Americans

If you're a US citizen or resident working at home or abroad, understanding Social Security tax is crucial for your financial planning. This tax supports benefits that millions of Americans rely on for retirement, disability, and survivors.

Whether you’re employed, self-employed, or living overseas, knowing how Social Security tax applies to you can help you avoid surprises and plan your taxes effectively.

In this article, we’ll explain what Social Security tax is, how it works for employees and self-employed individuals, and why totalization agreements matter for expats – especially if you work in the US or the UK.

What is Social Security tax?

Definition and purpose

Social Security tax is a federal payroll tax that funds the Social Security program. This program provides financial support for retired workers, disabled individuals, and survivors of deceased workers.

The taxes collected are essential to maintaining the system that millions depend on each year.

FICA vs. SECA

There are two main types of Social Security tax:

• FICA (Federal Insurance Contributions Act): This applies to employees and employers. Employers and employees each pay a portion of the tax.
• SECA (Self-Employment Contributions Act): This applies to self-employed individuals, who pay both the employee and employer portions themselves.

Current rates and wage base limits

For the 2024 tax year, the Social Security tax rate is 12.4% total:

• Employees pay 6.2% on wages up to the wage base limit.
• Employers pay the other 6.2%.

Self-employed individuals pay the full 12.4% themselves, plus Medicare taxes (which we’ll cover later).

The wage base limit – the maximum income subject to Social Security tax – is $176,100 for 2025. Income above this amount is not subject to Social Security tax, though Medicare taxes continue without limit.

Totalization agreements

Purpose and benefits

If you work both in the US and another country, you could face paying Social Security taxes twice – once to each country.

Totalization agreements are designed to prevent this dual taxation. These bilateral treaties help coordinate Social Security coverage and tax obligations, so you don’t pay twice on the same income.

The agreements also help you qualify for Social Security benefits by allowing you to combine work credits earned in both countries. This can be especially helpful if you haven’t earned enough credits in one country alone to qualify for benefits.

The US-UK totalization agreement

One of the most important agreements for expats is between the US and the United Kingdom.

It ensures that:

• You only pay Social Security taxes in one country at a time.
• You can combine your work credits from both countries to qualify for benefits.
• You don’t lose out on coverage periods if you move between countries.

This agreement makes it easier for US citizens working in the UK – or vice versa – to manage their tax and benefit obligations efficiently.

Certificate of coverage

To avoid paying Social Security taxes in both countries, you need a certificate of coverage. This document proves that you’re covered under one country’s Social Security system and are exempt from paying in the other.

You can request a certificate through the Social Security Administration or the equivalent agency in the foreign country. 

Implications for US expats

Working abroad

Even if you live and work outside the US, you may still be subject to US Social Security taxes, especially if you work for a US-based employer.

Generally, the US requires its citizens and residents to pay Social Security taxes on US-source income, but totalization agreements can help reduce or eliminate this burden.

Self-employed abroad

If you are self-employed abroad, you are generally liable for US Social Security taxes under SECA – unless you are covered by a totalization agreement with your country of residence.

The agreements provide rules for where you pay Social Security taxes depending on your work location and length of stay.

Claiming benefits

Totalization agreements also help when you apply for Social Security benefits. If you don’t have enough work credits in the US, these agreements allow you to combine your credits from both countries.

This can make you eligible for retirement, disability, or survivor benefits that you otherwise wouldn’t qualify for.

Practical steps and compliance

Filing requirements

If you’re self-employed, you must report and pay Social Security and Medicare taxes using Schedule SE as part of your federal income tax return (Form 1040). Employees typically have Social Security taxes withheld from their paychecks, so no separate filing is needed.

Make sure to keep accurate records of your income and tax payments, especially if you’re working abroad or under a totalization agreement.

Avoiding double taxation

To prevent paying Social Security taxes in both the US and your country of residence, use totalization agreements. Obtain a certificate of coverage to prove you’re exempt from foreign Social Security taxes while paying into the US system – or vice versa.

It’s important to notify your employer and relevant tax authorities of your coverage status early to avoid unexpected tax bills or penalties.

Seeking professional advice

International Social Security and self-employment tax rules can be complex. We recommend working with a tax professional who specializes in expat taxation and Social Security agreements.

They can help you navigate filing requirements, claim exemptions, and optimize your benefits while staying compliant with both US and foreign laws.

Conclusion

Understanding Social Security tax, self-employment tax, and totalization agreements is essential for US citizens and residents living or working abroad. These systems exist to protect your benefits and prevent double taxation but require careful navigation.

Review your personal situation regularly, stay informed of any changes in tax law or international agreements, and seek expert advice to ensure you’re maximizing your benefits while meeting your tax obligations.