What Will the Tax Implications of Working Abroad Be on My U.S. Social Security?

Do U.S. taxpayers abroad have to pay into the U.S. Social Security system, the foreign one, or both? Get the details.

Question

I’m an American citizen currently working in San Francisco, but my employer will be sending me abroad for likely around a year to work in one of its offices in Sub-Saharan Africa. As I near retirement, I’ve been thinking more and more about Social Security-related matters -- will this stint overseas affect my Social Security situation? Will I keep paying U.S. Social Security taxes while working abroad, pay them to the foreign country’s government, or not pay them at all? Crossing my fingers that I don’t have to pay them to both countries…..

Answer

Congratulations on what sounds like a fabulous opportunity—hope you get the chance to explore that amazing continent. Let’s first address whether you’ll continue paying U.S. Social Security taxes, then turn to the issue of the foreign country’s Social Security regime.

If your employer is an “American company,” it will need to continue withholding U.S. Social Security taxes from your paycheck while you are abroad. An “American company,” for tax law purposes, is a firm that is organized (as in, has legal status) under the laws of a U.S. state or territory. Check with your company on this to be sure—some firms that folks assume are “American companies” in reality aren’t.

In the event that your company is not organized under the laws of a U.S. state or territory, it might still be an “American company”—and you accordingly would keep paying U.S. Social Security taxes—if the employer is:

  • a partnership in which two-thirds or more of the partners are U.S. residents
  • a trust for which all of the trustees are U.S. residents
  • an individual who is a resident of the United States
  • the U.S. government or any of its “instrumentalities”, or
  • a foreign person who has an employee who performs services related to a contract between the U.S. government and a “domestically controlled group of entities” that includes such foreign person.

Even if your employer is not “American” under this definition, you would still be obligated to pay U.S. Social Security taxes if your work abroad is done:

  • for a “foreign affiliate” of a U.S. employer under an agreement between the U.S. Department of the Treasury and the American employer
  • in connection with an “American aircraft or vessel” (but only where you either entered into the employment agreement in the United States, or the vessel/aircraft arrives at a U.S. port/airport while you’re working on it), or
  • in a country with which the United States has a bilateral Social Security agreement that requires such withholdings from American citizens (but that will allow them to not pay such taxes to the foreign country)

Your concern about the prospect of paying double Social Security is understandable—as a matter of fairness, why should you pay into two systems when you’re likely to retire in only one country?

Unfortunately, Americans working abroad are subject to the host country’s laws and often do get stuck paying Social Security taxes (or their equivalent) to both the United States and the foreign country. The United States has inked agreements with a number of nations (called “totatlization” or “bilateral Social Security” agreements) to eliminate this double-payment obligation, but it looks, unfortunately for you, like there aren’t any in force with any African countries—see the Social Security Administration’s U.S. International Social Security Agreements page.

There is a chance, though, that the limited duration of your assignment abroad may save you from having to pay the foreign country’s Social-Security type taxes. Unlike the United States, a lot of countries don’t require foreigners to pay into their systems when the worker is present for less than a certain period of time. You’ll need to check out the foreign country’s laws on this point.

Finally, if you do have to pay into a system like Social Security in the foreign country, your employer might pick up that tab. This is fairly common with big U.S. multinationals that send their employees abroad. While it’s still ultimately beneficial to your bottom line, note that such a payment would count as income for you, raising your U.S. tax liability.

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