The partner country will also consider periods of coverage in the United States to qualify for a worker benefit in similar circumstances. Most countries require a worker to receive at least one year of national insurance coverage in order to qualify for totalization benefits. In addition, a worker`s combined insurance periods in the United States and national territory must be equal to or above the legal minimum in that country. The minimum duration of the combined coverage a worker must earn for totalization varies from country to country. For example, Switzerland takes 1 year, Hungary 20 years and Japan 25 years (SSA 2016, 2017). Totalization agreements are popular with U.S. companies because they exempt employers from paying a dual social security tax. According to a regular study of net tax savings by the Office of International Programs of the Social Security Administration (SSA), U.S. companies and their employees save about $1.5 billion a year in foreign social taxes based on these agreements. These tax savings help make U.S. operations more profitable around the world, while improving the competitiveness of U.S.
trade. The totalization agreements also excuse foreign workers temporarily sent to the United States for payment of U.S. Social Security taxes. The result is annual savings of approximately $500 million for the foreign workers involved and their employers. These tax savings make the United States a more attractive destination for foreign capital, thereby encouraging foreign direct investment. As an expat, it is essential to understand how tax treaties and totalization agreements will affect your tax situation. A tax treaty is an agreement between the United States and a foreign country that provides facilities for those who would otherwise be taxable in both countries. As a U.S.
citizen or green card holder, you are subject to global income taxation. If you are tax resident in a foreign country, tax treaties and totalization agreements could bring you significant financial benefits. Before we delve deeply into the technical details, let`s first take a look at the difference between these two people, because they involve American people, who understand only U.S. citizens and resident aliens. In the absence of a totalization agreement, a large number of workers who work or are self-employed in another country, as well as employers in the first country, face the prospect of paying social security contributions to two countries with the same income. For example, a U.S. employer may send a U.S. worker to another country to continue his or her employment. In the absence of a totalization agreement, the employer and the worker are generally required to pay social security contributions on the worker`s income in the United States and the host country. When a foreign employer sends a worker to the United States to continue his or her employment, the employer and the worker often have to pay double taxes on social security, unless that country and the United States have a totalization agreement.
U.S. totalization agreements with other countries generally have some key elements. Overall, totalization agreements eliminate the dual social security of workers in the United States and the other country where they are from or in which they work. In doing so, one worker is excluded either from the other country`s taxation and social benefits program. There are many rules governing a worker`s social security system. One rule, the territorial rule, stipulates that a worker is subject to the laws of the country in which he works.