Individuals who reside abroad frequently ignore essential parts of US expat tax return. What about other things besides filing requirements, deadlines, and valuable deductions and exclusions?
Expats frequently overlook the Social Security contributions needed for US nationals working abroad and are unaware that their benefits may be obtained in a foreign nation. What you should know regarding Social Security and your US expat taxes, including the treaties at play, where Social Security is paid, and what to anticipate in terms of taxes, is covered below.
Depending on your citizenship, residency status, and the laws of the nation you live in, expats may be eligible to receive Social Security benefits while living abroad. All US residents are qualified to receive benefits if they have contributed to Social Security.
It takes ten years of employment and US Social Security contributions—40 quarters of coverage—to become eligible for retirement benefits.
Payments terminate after you have been outside the US for six full calendar months if you are not a US citizen eligible for benefits unless you fulfil specified requirements or reside in a nation with a totalization agreement. If a non-US citizen returns to the US for an entire calendar month after being abroad, their benefit payments may be resumed.
Your probability of having your Social Security check stolen or misplaced increases when you’re abroad. In that case, foreign nationals should contact the Social Security Administration or the US Embassy in your area. The SSA will then promptly replace your check. Enrolling in electronic payments is a terrific approach to remove the possibility of a review being stolen or misplaced.
No matter where you live, where you stay, or your citizenship status, any Social Security retirement benefits you get will be regarded as taxable income on your US expat taxes. Because they were not earned abroad, these contributions are not covered by the Foreign Earned Income Exclusion. If the tax treaty between the two countries cannot be used, benefits are 85% taxable on your US expat taxes and frequently result in a tax burden in other countries.
Remember that as a US citizen, you are entitled to receive Social Security payments no matter where you live, notwithstanding the possibility that you will be subject to multiple coverages and, consequently, dual taxes from Social Security or other social insurance schemes offered across the world. If you match the criteria for each nation, it is feasible for you to collect benefits from more than one throughout your retirement years.
No matter where they reside or work, US citizens and those with Green Cards are frequently compelled to contribute to Social Security. The employer and the employee must contribute to Social Security if the individual works for an American business. Additionally, self-employed business owners must contribute to US Social Security by paying self-employment tax on their net income.
The problem with this legislation is that many foreign nations also demand social insurance contributions from their citizens to compensate for whatever benefits residents may be eligible to receive while residing there. Due to their simultaneous contributions to US Social Security and their host country’s social insurance systems, many expats effectively pay two taxes.
The US has agreements with numerous nations to identify which social insurance system an expat participates to address the issue of double taxation. For more such insights, feel free to reach out to us at USA Expat taxes.