What Is A Us Social Security Totalization Agreement

The United States has agreements with several nations, the so-called totalization conventions, in order to avoid double taxation of income in relation to social contributions. These agreements must be taken into account in determining whether a foreigner is subject to the U.S. Social Security Tax/Medicare or whether a U.S. citizen or resident alien is subject to the social security taxes of a foreign country. In 1977, labour-level immigration patterns were very different from those of 2018, and most trade and multinational relations in the United States then focused on Western Europe. Therefore, Section 233 was adapted to the social security systems of Western Europe at the time. The first two agreements, in which the United States entered with Italy and West Germany, preceded the adoption of Section 233. That is why this scheme was designed with the social security systems of these two countries in mind. Both countries had traditional Bismarck contingency systems that covered almost all of their workforce. Section 233 provides that the President can only enter into totalization agreements with countries with general social security plans that provide regular benefits because of their age, disability or death or actuarial equivalent. This problem is particularly acute for U.S. workers, as the Federal Insurance Contributions Act (FICA) and the Self-employed Contributions Act (SECA) impose broader coverage for foreign workers than comparable social security programs in most other countries (McKinnon 2012).

Although most countries tax their own nationals only for work on their own territory, the United States imposes taxes on a wide range of economic activities carried out by U.S. citizens and permanent residents outside the United States. Countries where most American workers are transferred tend to impose high payroll taxes to fund relatively generous social security programs. In some countries, the combined share of employees and employers in these taxes can reach or exceed 50% of the payroll (IBIS Advisors 2017). The United States did not immediately begin to conclude similar social security agreements; Instead, it entered into a series of friendship, trade and shipping (FCN) contracts with close allies and trading partners. Many fcn contracts provide that each country treats the nationals of the other country as it treats its own nationals when they are entitled to social benefits.11 However, it soon became clear that these FCN contracts did not adequately protect the social benefits rights of American emigrants and that many American workers sent abroad and their employers were forced to pay double social security contributions for the same income. Most U.S. agreements eliminate dual coverage of autonomy by allocating coverage to the worker`s country of residence.