Social Security Benefits for US and Non-US Citizens
Budgeting | Planning Perspectives
Who is eligible for benefits?
Social Security is a significant payroll tax as well as an important source of retirement income for many US and non-US citizens, alike. Workers pay into Social Security while they are working and receive the benefits when they retire. The size of Social Security benefits depends on your earnings history as well as when you begin to take benefits. But what if you are no longer living in the United States? What happens to your Social Security benefits?
Those individuals living abroad who have paid into Social Security may receive U.S. Social Security benefits if they are eligible. Eligibility for those not living in the United States are subject to special considerations:
International Social Security Agreements coordinate the U.S. Social Security program with the comparable programs of other countries. International Social Security agreements, often called “Totalization agreements” serve 2 purposes: First, they eliminate dual Social Security taxation, and secondly, they fill gaps in the benefit protection for workers who have divided their careers between the U.S. and another country. The Social Security benefit gap occurs when an individual does not work long enough in a certain jurisdiction to qualify for the social security benefits. The Totalization agreement allows a worker to combine the time they worked in the U.S. with the time worked in other countries covered under the agreement. Then each country will pay out its proportionate share in retirement benefits that the employee earned.
Foreign Pensions Plans are exactly what they sound like, pension plans through a foreign government (it is important to note that pension plans through a foreign non-government employer do not factor into the calculation of your Social Security benefit). Foreign government pension plans can reduce the amount of Social Security benefits you receive under the ruling of the Windfall Elimination Provision (WEP). The Social Security Administration has a tool that calculates the potential Social Security benefit deduction from a foreign pension plan. The reduction is roughly $1 dollar in U.S. Social Security for every $2 dollar of foreign pension. To calculate the exact dollar reduction, see the Social Security Administration tool here: https://www.ssa.gov/international/wep_intro.html
What if I am not a US citizen or I no longer have my green card?
If you worked in the United States and paid into Social Security, you are generally eligible for benefits. However, if you no longer live and work in the US or you no longer hold your green card your Social Security benefits may be at risk. The general rule is Social Security payments must stop if you have been outside of the United States for six consecutive calendar months. However, if you are a resident of certain countries that have Totalization agreements, then you can receive benefits.
Unsure if your country has a Totalization agreement with the United States? A comprehensive list can be found here: https://www.ssa.gov/international/agreements_overview.html
Unsure if you can receive your Social Security benefits while living abroad? The Social Security Administration has another additional resources found here: https://www.ssa.gov/international/payments_outsideUS.html
You might also be wondering if there are any tax implications from this. Generally speaking, most types of U.S. sourced income paid to a foreign person are subject to a withholding tax of 30%. However, the United States has tax treaties with many countries, in which a reduced rate or exemption is available. The Social Security Administration has another tool that will help you determine any tax withholding of your Social Security benefits, found here: https://www.ssa.gov/international/AlienTax.html
Additionally, when you live outside the United States the Social Security Administration will send you a questionnaire periodically. The questionnaire will ask about any work you are doing abroad and any changes in your living situation that may affect your eligibility for benefits.
So what’s next?
As the global workforce becomes more transient, governments strive to make sure their workers receive their entitled benefits even if they live abroad. With Totalization agreements and tax treaties in place, this is often the case. Determining your Social Security eligibility while living abroad is not as daunting as it seems. There are various Social Security Administration resources available to help you determine your eligibility.
If any of this applies to you or you would like help understanding the best way to handle your situation, please reach out to us. As a foreign-born US resident, or someone who has paid into Social Security in the US and now works abroad, it is worth determining how to secure the benefits for which you are entitled. These benefits can be the difference between a successful long-term financial plan and one that falls short.