1000+ Verified REVIEWS
Tax Guide
Sign Up
About Us
Services
Pricing
Tax Guide
Contact

Social Security & Expats - Q&A

Social Security & Expats - Q&A
Ines Zemelman, EA
19 January 2018

Retirees are a large part of our client base and we consistently put out articles relevant to their needs.

We are frequently asked questions about social security and wanted to put together a Q&A covering these topics.

1. What are the important Social Security considerations for retirees who've extensively worked abroad, and for those who retire abroad?

If you worked in a country that has a Social Security Totalization Agreement with the US, credits you earned in a foreign country can be combined with your US credits to meet the social security requirements - either in the US, or in your resident country, or in both countries.

Currently, these countries have a Social Security Totalization Agreement with the United States:

 

Australia

Austria

Belgium

 

Canada

Chile

Czech Republic

Denmark

Finland

France

Germany

 

Greece

Ireland

Italy

Japan

South Korea

Luxembourg

Netherlands

Norway

Poland

Portugal

Slovak Republic

Spain

Sweden

Switzerland

United Kingdom

2. Does income earned abroad as a US citizen count towards an earnings history?

No, the amount of income earned abroad does not count towards your US earning history and does not increase the amount of future benefits.

It is only helpful to meet the minimum required threshold of 10 years (40 quarter credits) in order to receive the benefits when you reach the retirement age. To be eligible to have your foreign credits counted, you must have earned at least six credits (generally one and one-half years of work) under the U.S. system. Then you can combine your credits earned in other countries to "fill the gap".

What counts is "employment credits".  If time worked abroad qualifies for an employment credit in that country (for example, in the case of Australia it is a credit towards the Old Age pension) - that credit, if necessary, may complement insufficient credit in the US for receiving the Social Security benefits. Ie - if you had 25 credits in the US, and you have 15 credits in Australia, you now have 40.

However, the amount of benefits will not be increased by a single $1, regardless of the amount of income earned abroad.

Working example: if you worked in the US until you were 25 and earned 6 Social security credits, then spent the next 30 years working in the UK, you can combine the credits to receive Social security payments.  If you moved to Hong Kong, which does not have such an agreement, only the credits paid into the US system would count.

3. Do expats get Social Security?

Yes - you can receive social security payments if you are residing abroad, unless you live in one of these countries:  Azerbaijan, Belarus, Georgia,Kazakhstan, Kyrgyzstan, Moldova,Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. Exceptions can be made, but they are hard to come by.

4. Does dual citizenship or a change in citizenship forfeit one's earned benefits?

If you are eligible for social security payments, you can continue to receive them as a dual or non-citizen.

5. How do these considerations change among different foreign nations?

If you are a US citizen then dual citizenship will not reduce or forfeit your US benefits. If you are a non-resident alien receiving U.S. Social Security benefits for work previously performed in the US then 85% of your Social Security benefits will have 30% tax withholding. This rate may be reduced if your country of residence has a Tax Treaty with the US (i.e, US Social Security received by residents of Canada, Egypt, Germany, UK, Israel, Italy, Ireland, Romania) are exempt from US tax.

6. Do other governments' Social Security systems come into play?

In some cases foreign pension may reduce the amount of US Social Security benefits through the "Windfall Elimination Provision" (WEP). Such reduction applies only to certain categories of retirees and depend on when the pension was earned, whether the Social Security taxes were paid on the same income on both countries, and on other factors.  The social security website has a  calculator may help you find out whether your Social Security benefits will be reduced

7. Do their taxes come into play, and how can retirees avoid double taxation?

If Social Security benefits were taxed in both countries then double taxation can be eliminated. Tax paid in the foreign country on US Social Security benefits will be applied as a foreign tax credit against tax paid or withheld in the US.

8. What about people who are born in a foreign country with a totalization agreement, and then move to the US at, say, 40 years of age. Will they receive credit for those years worked, or are they essentially starting from "scratch" in the US Social Security system? In general, do U.S. immigrants get lower benefits because they haven't paid US payroll taxes as long?

They are starting from scratch in the US.

But credits earned in their country of birth are still helpful. So, if they earned 25 credits in the UK, and then earned 15 credits in the US between ages 40 and 50 and then stopped working, when they reach retirement age they will be able to get US Social security. US immigrants have the opportunity to earn the same benefits as those who were born in the US. 

9. Are there any important considerations we haven't covered, as far as overseas Social Security benefits are concerned?

Perhaps, the most important question not asked - whether the Social Security Totalization Agreement extends to Medicare. Is it possible to add credits earned outside of the US to meet the 40 quarter credits (10 years) threshold for Medicare? The answer is NO. To be eligible for Medicare, one needs 10 full years of work in the US.

Ines Zemelman, EA
founder of Taxes for Expats