A totalization agreement is a bilateral agreement between two countries that coordinates their social security programs to protect the benefits of people who have worked in both countries. These agreements are designed to address issues that arise when a worker splits their career between countries with different social security systems.
The key aspects of totalization agreements include:
- Eliminating Double Social Security Taxation
This aspect ensures that a worker and their employer are not required to pay social security taxes to two countries on the same earnings. Typically, the agreement stipulates that social security contributions are paid to the country where the work is being performed, although there are exceptions based on various factors such as the duration of the worker’s assignment abroad.
- Filling Coverage Gaps
Workers who divide their careers between countries may not qualify for social security benefits in either country due to not meeting minimum contribution requirements. Totalization agreements allow the aggregation of work periods from both countries to qualify for benefits, helping to fill these coverage gaps.
- Benefit Portability
The agreements facilitate the payment of social security benefits across borders. For instance, a retired worker living in one country can receive social security benefits from another country where they previously worked, without the usual restrictions on benefit payments to non-residents.
Totalization agreements are particularly beneficial for expatriates, multinational employees, and immigrants who have earned social security credits in more than one country, helping them to secure and optimize their retirement and disability benefits.
Totalization agreements are essential for American immigrants to maximize the benefits from their international work histories. Established since the 1970s, these agreements facilitate the coordination of social security coverage and benefit payments between the U.S. and its partner countries.
Totalization agreements simply explained
Think of them as these really helpful deals between countries that make life easier for people who’ve worked in more than one place around the world. Here’s what they do:
They prevent double-dipping on social security taxes. It’s like when you work in two countries, both shouldn’t be reaching into your paycheck for social security taxes. Totalization agreements make sure you’re only paying this tax once, so it feels fairer and less complicated.
They ensure the blanks in your work history are filled. Imagine you’ve got a puzzle, but some pieces are missing because you worked here and there. These agreements help put all those pieces together, counting all your work, no matter where it was, so you can get the social security benefits you’ve earned.
They allow you to take your benefits with you. Whether you’re in your home country or living abroad, these agreements make sure you can still get your social security benefits. It’s like having a security net that follows you wherever you go, making sure you’re covered even if you’ve worked in different places.
So, in a nutshell, totalization agreements are like a best friend for your work life, making sure you’re treated fairly and your work in different countries counts toward your social security, no matter where your journey takes you.
Here’s a closer look at totalization agreements
Their primary objectives are to eliminate the issue of double social security taxation, bridge gaps in coverage for individuals with careers spanning multiple countries, and enable the smooth payment of benefits to residents in both the U.S. and other nations.
In scenarios without a totalization agreement, individuals working temporarily abroad could be subjected to dual social security tax obligations. Totalization agreements address this by allowing the aggregation of coverage periods from each country involved, thereby determining the appropriate social security coverage.
Moreover, these agreements improve the portability of benefits, ensuring that individuals can receive benefits based on their residency, and allow for the collection of partial benefits from multiple countries, provided the combined coverage meets eligibility criteria.
For instance, an American citizen who has worked in Germany for several years before returning to the U.S. might struggle to qualify for social security benefits in either country due to their divided work history. However, with a totalization agreement between the U.S. and Germany, this individual can combine their work credits from both nations to satisfy the eligibility requirements for benefits in either country, ensuring that their contributions in both countries are recognized towards their overall entitlement.
Totalization agreements benefit people with combined work histories in the U.S. and other countries in several ways:
- They prevent workers and employers from paying social security taxes to both countries simultaneously, ensuring that earnings are not subject to double taxation.
- Workers who divide their careers between the U.S. and another country can benefit from totalization agreements by combining work credits from both countries to qualify for social security benefits, even if they lack enough coverage under either system individually.
- These agreements enhance the portability of social security benefits by allowing workers to qualify for benefits based on combined coverage credits from multiple countries, making it easier for employees working in different jurisdictions to access their entitled benefits.
By leveraging totalization agreements, workers can have a smoother transition between different work environments and ensuring fair treatment for internationally mobile workers.
Countries with totalization agreements with the U.S.
The United States has totalization agreements with various countries to help workers with combined work histories in the U.S. and other nations. Some examples of countries with totalization agreements with the U.S. include:
- Australia
- Austria
- Belgium
- Canada
- Czech Republic
- Chile
- Denmark
- Finland
- France
- Germany
- Greece
- Ireland
- Italy
- Japan
- Luxembourg
- Netherlands
- Norway
- Poland
- Portugal
- Slovak Republic
- South Korea
- Spain
- Sweden
- Switzerland
- United Kingdom
Best resources for Americans working abroad
- Social Security Office of Retirement
- Internal Revenue Service
- List of countries with agreements with the United States
How to claim benefits under a totalization agreement
Typically, there’s no need for you to worry about totalization benefits until the time comes to apply for retirement, survivors, or disability benefits. When you decide to pursue benefits under a totalization agreement, you can submit your application at any Social Security office, whether it’s located within the United States or in the partner country. There are a few standard steps to claiming benefits under a totalization agreement:
1. Documentation
You must provide documentation of you work history in both the U.S. and the foreign country covered by the totalization agreement.
2. Application Process
Complete any required application forms for social security benefits under the totalization agreement, ensuring all necessary information is provided.
3. Coordination
The social security agencies of both countries involved in the totalization agreement coordinate with each other to process, verify eligibility, and calculate benefit amounts based on the combined periods of coverage and earnings.
4. Payment
Benefits under totalization agreements are usually calculated based on your combined periods of coverage and earnings, with payments made in the currency of the country responsible for paying the benefit.
What you need to know before applying for benefits under a totalization agreement
Employer Request
Employers are typically required to request a Certificate of Coverage from the Social Security Administration (SSA) on behalf of their employees. This certificate serves as proof that the worker is exempt from U.S. Social Security coverage and should be retained by the employer for documentation purposes.
Exemption from Dual Taxation
Totalization agreements help workers avoid dual social security taxation by ensuring that they are subject only to the social security tax laws of the country where they are working. This exemption is facilitated through the Certificate of Coverage issued by the SSA.
Documentation and Compliance
Employers must retain the Certificate of Coverage in their company files to demonstrate entitlement to exemption from U.S. Social Security taxes. This documentation is crucial in case of any inquiries from tax authorities regarding the absence of U.S. tax payments for workers covered under a totalization agreement.
Self-Employed Individuals
For self-employed U.S. citizens working abroad, they need to request a Certificate of Coverage to prove exemption from U.S. self-employment Social Security taxes. This certificate should be attached to their U.S. tax return each year to demonstrate compliance with the totalization agreement provisions.
Claiming Benefits
Workers who have divided their careers between a foreign country and the United States may be eligible for partial social security benefits under a totalization agreement if they meet certain eligibility requirements, such as having a minimum amount of coverage under both countries’ systems.
To claim benefits under totalization agreements and ensure you receive the full benefits you are entitled to, read about the specific laws applicable in the country where you have worked. Seeking advice from a qualified tax accountant is highly advisable.
