When it comes to US expat taxes, there’s a lot to handle. Expats must file various forms depending on their situation (such as the FBAR or Foreign Tax Credit) and comply with strict IRS deadlines.
Something that may go over the heads of US expats as they file their tax returns, however, is Social Security. No matter where they live, American citizens and residents still have to keep in mind their US Social Security taxes while abroad, if they still want to benefit from the US social insurance system.
This blog post answers some of US expats’ most common questions about collecting Social Security benefits while living overseas. It covers important information such as Totalization Agreements, which countries the US can’t send Social Security payments to, and what expats can do to protect their Social Security rights while overseas.
Let’s dive in.
Can expats collect Social Security while abroad?
Yes, US citizens who live overseas may still collect Social Security payments if they meet the eligibility requirements. It will depend on whether the expat has accumulated enough social security credits.
Do expats still have to pay Social Security taxes while living overseas?
The US has a citizenship-based taxation system, which means that US expats must comply with IRS tax obligations, regardless of where they live. As a result, some US citizens and green card holders living abroad must also pay US social security taxes, also known as self-employment taxes, while abroad.
Read more: What is Citizenship Based Taxation?
What if you’re a self-employed US expat, meaning you either own your own business or are an independent contractor living abroad? In this case, you’ll have to pay your self-employment taxes, which will include your Social Security and Medicare taxes. Here’s how much the IRS will tax you:
- 12.4% Social Security tax
- 2.9% Medicare tax
Now, here comes the problem. Many countries require their citizens and residents to pay Social Security payments to their own social insurance system. As a result, many US expats end up having to pay Social Security taxes to the US and to their new country of residence at the same time.
Fortunately, with many countries worldwide, the US has a tax treaty called a Totalization Agreement, to prevent double taxation for US expats.
What is a Totalization Agreement?
A Totalization Agreement has two primary purposes.
The first is to prevent double taxation, so the expat doesn’t end up paying Social Security contributions to two different insurance systems. The second is to fill the gaps in benefit protection for US citizens whose careers were split between the US and another country overseas.
Here’s a complete list of countries that have a Totalization Agreement with the US:
|Country||Entry into Force|
|Italy||November 1, 1978|
|Germany||December 1, 1979|
|Switzerland||November 1, 1980|
|Belgium||July 1, 1984|
|Norway||July 1, 1984|
|Canada||August 1, 1984|
|United Kingdom||January 1, 1985|
|Sweden||January 1, 1987|
|Spain||April 1, 1988|
|France||July 1, 1988|
|Portugal||August 1, 1989|
|Netherlands||November 1, 1990|
|Austria||November 1, 1991|
|Finland||November 1, 1992|
|Ireland||September 1, 1993|
|Luxembourg||November 1, 1993|
|Greece||September 1, 1994|
|South Korea||April 1, 2001|
|Chile||December 1, 2001|
|Australia||October 1, 2002|
|Japan||October 1, 2005|
|Denmark||October 1, 2008|
|Czech Republic||January 1, 2009|
|Poland||March 1, 2009|
|Slovak Republic||May 1, 2014|
|Hungary||September 1, 2016|
|Brazil||October 1, 2018|
|Uruguay||November 1, 2018|
|Slovenia||February 1, 2019|
|Iceland||March 1, 2019|
In which countries can’t US expats receive Social Security payments?
Depending on US expats’ country, the IRS has exceptions regarding who can receive direct deposits from Social Security. For example, the Social Security Administration (SSA) prohibits sending payments to US expats who live in North Korea and Cuba.
These expats will only be able to receive withheld payments if they move back to the US or move to another country with no Social Security payment restrictions. Other options include using a US mail forwarding address or have someone receive the check for them.
Other countries that the SSA cannot send Social Security payments to because of US sanctions include:
- – Azerbaijan
- – Belarus
- – Kazakhstan
- – Kyrgyzstan
- – Moldova
- – Tajikistan
- – Turkmenistan
- – Ukraine
- – Uzbekistan
To better understand whether you qualify for Social Security payments in your new home country, feel free to consult the SSA’s “Payments Outside the United States” tool.
Can foreign spouses of US expats collect Social Security?
In some cases, the spouses of US expats can be eligible for Social Security payments from our favorite Uncle Sam. The rules are a bit complex, so bear with us.
Social Security payments to spouses who aren’t US citizens or green card holders must stop if the spouse spends more than six months outside the US throughout the tax year. However, there are exceptions to the rule.
For example, if the non-citizen spouse lived in the US with their American citizen partner for at least five years, they can still benefit from Social Security benefits. Also, if their US partner dies, the foreign spouse is eligible for Social Security survivor benefits.
Make sure to contact a trusted expat tax advisor who can help you better understand your spouse’s situation and whether they can benefit from the US Social Security system.
How will the IRS tax my Social Security payments?
US expats need to know that their Social Security payments don’t qualify for the Foreign Earned Income Exclusion (FEIE) since the payments are not foreign nor are they considered earned income. As a result, the Social Security payments will be taxable by the IRS.
How much the IRS will tax you depends on your overall income. For US expats earning more than $25,000 yearly, 50% of their Social Security benefits will be subject to federal income tax.
If half of your Social Security benefits and other earned income combined is more than $34,000 ($44,000 for married couples), then the IRS will impose an 85% tax rate on you.
How do I protect my rights to Social Security while abroad?
The SSA regularly sends a questionnaire to US citizens living abroad to report information about their status abroad. If you have yet to receive the questionnaire, you must contact the Social Security Administration. The SSA’s contact information is in its “Your Payments While You Are Outside the United States” pdf.
Based on their answers, the SSA will determine whether these US expats still qualify for Social Security payments. If you don’t file the questionnaire on time, the SSA will suspend your Social Security benefits.
As a quick note, ensure that the SSA information is accurate. Suppose you get caught filling out any false information or fail to report any changes to your situation. In that case, you could have to deal with penalties and you might lose all of your Social Security benefits altogether.
Let Bright!Tax Help You with Your Social Security Taxes
Moving to a new country doesn’t mean you can’t still benefit from Social Security or that you will end up owing too much in taxes. With the right preparation, you still contribute to your eventual Social Security benefit and avoid double taxation.
Whether you plan to retire overseas or need help filing your Social Security taxes, Bright!Tax has your back. Contact us today and one of our tax professionals will assess your Social Security situation to find the best solution for you.
In the meantime, feel free to check out some of our previous content about US expat taxes that could interest you: