Social Security for Expatriates

How old were you when you picked up and moved over yonder to your new host country? Were you working in the US previously? Don’t overlook low paying part-time and summer jobs.

Why should you care? The answer is that you very well might have earned social security credits and these credits count towards a social security retirement benefit, or in other words a monthly pension payment. While the amount varies according to a complicated formula involving amounts paid in, age, and inflation it is safe to say that the retirement benefit is well worth your consideration. Social security also includes other benefits of disability, family survivors, and medicare. This blog is only dealing with the retirement benefit. Perhaps we can address the others at a later date – let me know if you are interested!

Caveat – for the purposes of this blog, we are assuming that you are an US citizen living and working abroad. If you are living in the US, then be aware that not all information is relevant and/or accurate for your situation.

The Basic Facts

1. Who is eligible?
2. How to qualify?
3. How much?
4. When?
5. What else do I need to know?

Who is eligible?
First make sure that you have a social security number. If you are a US citizen then you probably already have it. If not, then go to your local consulate and register, or go to your local social security office next time that you are visiting the US. Check www.ssa.gov for full information about which documents to bring, but start with your US birth certificate or Consular Report of Birth Abroad or Certificate of Citizenship and US passport. If you are not a US citizen and happen to have a social security number, then call the social security department at 410-965-0160 and ask them if you qualify.

How to qualify?
Next – get 40 credits. In order to qualify for your first dollar of your monthly you must obtain 40 credits from social security. A credit is roughly equivalent to one quarter of a year. You can obtain up to 4 credits per year. So if you work 10 years at even a modest salary of $5,000 per year then you will get a minimum retirement benefit. To be exact, the minimum amount for one quarter of coverage in 2012 is $1160, or $4640 for the maximum of four credits for the year. The amount is adjusted upward for inflation each year. Again, see ssa.gov for the gritty details on how much per year. Better than breaking your head, just order your social security report. It will tell you if you qualify already and if not, then how many credits you have on record. Here is a sample statement. Looks like they want everyone to get their statement online now – try http://www.ssa.gov/myaccount/. If you can’t get that to work, than try this mail-in form “SSA-7004-SM”. Remember this – 39 credits are worth NOTHING, regardless of how much you paid in. 40 and up gets you the benefit and they need not be consecutive. For instance, you might have worked I the US for six years while earning $90k per year. Even though you and your employer probably chalked up over $75k into the system, you do not yet qualify for a retirement benefit. If you indeed have less than 40, then keep reading to find out how to earn additional credits from abroad.

The catch is that these earning must have been subject to FICA (social security) taxes. This happens almost 100% of the time when you are working or self-employed in the US. If you earned all your credits prior to disembarking for over yonder, then rest easy. As an XPAT it is a bit more complicated. First off, barring unusual exceptions, salaried employees of foreign companies do not pay into the system. That leaves self-employment and brings us to the subject of Totalization Agreements. This is an agreement to eliminate double taxation on national insurance and they exist for 24 countries as of this writing. Here is the list: http://www.ssa.gov/international/agreements_overview.html.

Self-employment (SE) taxes are generated when your accountant reports your SE income on schedule C attached to your annual form 1040 to the IRS. With the totalization agreement in place, you will typically be exempted from SE tax by the appropriate documentation to establish that you are already paying into your local countries system. If you don’t attach said documents (the choice is yours) or your host country lacks a totalization agreement (for instance Israel), then you will be hit with SE tax of 12% to 14% of your net self-employment earnings. That is bad because, after all, who needs another tax? And it is good because you will earn those missing credits!

Example – let’s say you left the US at the age of 25 to fulfill your dream of working in he French Riviera. You checked your social security report and it shows that you earned 28 credits. In the ideal situation you will earn self-employment of about $5000 per year for the next three years to complete your 40 credits. If you are a salaried employee, then seek out a side position where you work independently. For example, tutor people in English. After all, everyone wants to speak English! You certainly can earn more SE income, but consider that you will be burdened with SE tax for the entire amount. That is, you cannot opt into SE tax for a partial amount. Assuming that a totalization agreement exists for your host country, it is all or nothing. As with all things tax related, be certain to maintain your records carefully including receipts for all income and related expenses.

In summary, strive to earn about $5000 minimum per year in SE income to earn your social security credits.

For the remaining questions (How much? When? What else do I need to know?), please see part II!