Social Security withholding for Foreign Nationals

Social Security withholding for Foreign Nationals

If you own a business and/or earn wages in the United States, you know that, generally, you have a withholding obligation from such earnings for Social Security and Medicare taxes. For foreign nationals working or earning income in the U.S., such withholding may present a bit of a conundrum – as those individuals may also have similar obligations in their home countries.

As such, one could conceivably have multiple obligations for government retirement or similar programs from a single set of wages or earnings in one country. Naturally, this type of double taxation seems onerous and cumbersome.

However, there are a number of ways a foreign national working in the U.S. may avoid this problem. For example, under certain visas (F-1, J-1, and certain H-2 and H-2A visas, just to name a few), visa holders may have a general exemption from Social Security/Medicare withholding.

For foreign nationals working in the U.S. on visas such as E-visas or L-visas, while there is no general exemption from Social Security withholding, and therefore such employees are generally responsible for Social Security and Medicare withholding, each should be aware that the U.S. has agreements with a number of countries that resolves this problem by mandating which country should receive relevant retirement benefits.

These agreements, called Totalization Agreements, specify the circumstances under which Social Security or government retirement program benefits should be directed to one country, and not the other. Such agreements exist between the U.S. and Australia, Austria, Belgium, Brazil, Canada, Denmark, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, Switzerland, and the United Kingdom, just to name a few.

To briefly examine the totalization agreement between the U.S. and Germany, generally, the key factor is the length of time the foreign national is sent to work in the U.S. If less than five years, generally, retirement benefits should be remitted to the German system, and one is exempt from doing the same to the U.S. Social Security program. If sent to work in the U.S. for more than five years, Social Security withholding into the U.S. system will likely occur in place of remittance to the German retirement system. Naturally, certain facts and circumstances may change the outcome, which emphasizes the importance of consulting a tax professional when relocating to the U.S. for work or otherwise working in the U.S. without citizenship or permanent residence status.

Also, quite critically, a “certificate of coverage” must be obtained from the Social Security Administration to make use of the totalization agreement between the U.S. and the relevant country; otherwise, the default withholding rules for foreign nationals working in the U.S. may apply, meaning the worker may have obligations to the U.S. Social System system and the retirement system in his or her home country.

By Andrew Howe Attorney at Bridgehouselaw