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American Expats Beware: Double Taxation on Social Security Income
Author: Joel Baretto, CFP®
February 29, 2024
A totalization agreement, also known as a social security agreement or a bilateral agreement, is an international treaty between two countries with the primary aim of coordinating the social security systems of the involved countries. The purpose of these agreements is to help individuals who have worked in both countries to qualify for social security benefits by aggregating their periods of coverage.
Typically, a totalization agreement addresses issues such as pension eligibility, disability, and survivor benefits. Without such agreements, individuals might face challenges in meeting the minimum contribution requirements for social security benefits in each country independently. Totalization agreements can prevent double taxation and ensure that individuals receive the benefits they are entitled to, based on their combined work history in the participating countries.
The terms and conditions of totalization agreements can vary between countries, so it’s essential to refer to the specific agreement between the countries in question for detailed information. As of the date of this article, there are about 30 countries that have entered into such agreements to promote cooperation and to provide greater protection for individuals moving between their respective territories.
If you reside in a country without a totalization agreement with the United States, it can have implications for your U.S. Social Security benefits. Totalization agreements are international agreements that help eliminate dual Social Security taxation and coordinate the benefits payable to people who have worked in both the United States and another country.
Without a totalization agreement, you may be subject to dual Social Security taxation, meaning you could be required to pay Social Security taxes to both the United States and the country in which you reside. This can potentially reduce the amount of your take-home pay.
Additionally, without a totalization agreement, you may not be able to count your credits from the other country towards the eligibility and computation of U.S. Social Security benefits. This could affect the amount of your Social Security benefits or your eligibility for certain benefits.
It’s essential to check the specific regulations and agreements between the United States and the country in which you reside, as the implications can vary depending on the circumstances and the agreements in place. If you have specific questions about your situation, it’s advisable to consult with the Social Security Administration (SSA) or seek guidance from a qualified cross border professional.
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