Aging Options

Understanding Social Security's Totalization Agreement

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Social Security tax is non-refundable, meaning that if someone from another country pays into the U.S. system but never qualifies for benefits, it isn’t possible to get a refund of the taxes paid.  As more and more large companies become multinational and their employees work overseas, a growing number of individuals have emerged who don’t work for a long enough period in a foreign country under that country’s Social Security program and therefore may “lose” their contributions. 

There are two requirements for collecting Social Security retirement benefits:  you must meet both a minimum work requirement and a minimum age requirement.

To meet the age requirement you need to be at least 62 years old.  To meet the minimum work requirements you need 10 years of paying into the system (through work) to be eligible.  When Social Security determines whether or not you have met the work requirements, it looks first at how many work credits you have earned.  The maximum number of credits you can earn per year is four credits.  Each credit represents $1,130 (in 2012) in earnings.  To be eligible for Social Security retirement benefits you must have worked 40 credits (or 10 years) if you were born in 1929 or later.

But say you worked internationally (this does not include military personnel as they have paid into Social Security during their time abroad) for part of that time.  If you’ve split your career between working in the United States and working internationally, you may not have built up enough credits to be able to access benefits in either country.  However, the United States and many foreign systems have an agreement called the Totalization Agreement.  Since the late 70s and beginning with Italy, the agreement combines work experiences from other countries, coordinating the U.S. program with comparable programs in other countries and making it possible for an individual who has accumulated a combined number of work credits to totalize their benefit from each country and therefore secure benefits.  The purpose of the agreement is to avoid double taxation of income with respect to Social Security taxes and takes into account whether a U.S. citizen or an alien is subject to Social Security taxes or Medicare taxes.  The agreement also helps fill gaps in benefit protection for workers with divided work histories.  For example if a U.S. citizen worked 6 years in Germany and 10 years in the United States, his or her combined coverage would be 16 years; the U.S. benefit would be 10/16 of the benefit and the German benefit would be 6/16 of the benefit.

If you have enough credits under the U.S. Social Security system, Social Security will not look at your credits in another country.  It is therefore possible for an individual to claim Social Security benefits under two countries.

The United States currently has 24 Totalization Agreements with other countries including: Australia, Canada, South Korea, England and many others.  It is possible to find a complete list of countries on the agreement by going here.

The agreement allows workers to be exempt from coverage under one country or another rather than requiring them to be covered under both systems (and thus paying into both systems).  Many foreign nationals choose this route as the U.S. Social Security Tax structure tends to be lower than those of other countries.  The one exception involves workers who are temporarily transferred.  These individuals are treated differently as they continue to be covered under the U.S. program and are exempt from coverage under the host country’s system.  This is true of all countries in the agreement except for Italy.

If you have any question about whether or not you meet Social Security’s requirements under the Totalization agreement, check with your foreign consulate or Social Security.

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