The agreements allow sSA to add U.S. and foreign coverage credits only if the worker has at least six-quarters of U.S. coverage. Similarly, a person may need a minimum amount of coverage under the foreign system to have U.S. coverage accounted for in order to meet the conditions for granting foreign benefits. In order to eliminate the double taxation of taxes on social insurance and Medicare, the United States has entered into international agreements with 25 foreign countries (so-called „totalization agreements“). Totalization agreements exempt the federal Insurance Contributions Act (FICA) tax salaries, including social contributions and Medicare taxes, where a person`s income under a foreign country`s social security system is subject to similar taxes or charges for similar purposes. A similar exemption is due to taxes under the Employment Contributions Act (SECA). In 2019, the United States and the French Republic recalled, through diplomatic communication, the agreement that the taxes of the French Confederation of Generalisee Contributions (CSG) and the Contribution to the Repayment of Sociate Debt (CRDS) are not social charges covered by the social security agreement between the two countries. As a result, the IRS will not challenge foreign tax credits for CSG and CRDS payments on the basis that the social security agreement applies to these taxes.
This problem is particularly acute for U.S. workers, as the Federal Insurance Contributions Act (FICA) and the Self-employed Contributions Act (SECA) impose broader coverage for foreign workers than comparable social security programs in most other countries (McKinnon 2012). Although most countries tax their own nationals only for work on their own territory, the United States imposes taxes on a wide range of economic activities carried out by U.S. citizens and permanent residents outside the United States. Countries where most American workers are transferred tend to impose high payroll taxes to fund relatively generous social security programs. In some countries, the combined share of employees and employers in these taxes can reach or exceed 50% of the payroll (IBIS Advisors 2017). The United States has agreements with several nations, the so-called totalization conventions, in order to avoid double taxation of income in relation to social contributions. These agreements must be taken into account in determining whether a foreigner is subject to the U.S. Social Security Tax/Medicare or whether a U.S. citizen or resident alien is subject to the social security taxes of a foreign country. One of the general beliefs about the U.S.
agreements is that they allow dual-coverage workers or their employers to choose the system to which they will contribute. That is not the case. The agreements also do not change the basic rules for covering the social security legislation of the participating countries, such as those that define covered income or work. They simply free workers from coverage under the system of either country if, if not, their work falls into both regimes. If the worker is a U.S. citizen or a foreign national residing in the United States and works in a foreign country with which the United States has a totalization agreement and, in accordance with the totalization agreement, the payment is exempt from the U.S. Social Security Tax, the worker or employer should receive a statement from the authorized authority or agency of the foreign country, which verifies that wages are subject to social security in that country. Such agreements create a legal framework for the coordination of social security systems between countries. They provide the legal framework to protect the rights of migrant workers and fill gaps in social security. The agreements ensure that periods of employment in other signatory countries are taken into account in the granting of the right to social benefits for migrant workers who depend on the completion of a qualification period.
