Totalization Agreements

The aim of all U.S. totalization agreements is to eliminate dual social security coverage and taxation while maintaining the coverage of as many workers as possible under the system of the country where they are likely to have the greatest attachment, both while working and after retirement.

Each agreement seeks to achieve this goal through a set of objective rules.

A general misconception about U.S. agreements is that they allow dually covered workers or their employers to elect the system to which they will contribute. This is not the case.

The agreements, moreover, do not change the basic coverage provisions of the participating countries' social security laws - such as those that define covered earnings or work.

They simply exempt workers from coverage under the system of one country or the other when their work would otherwise be covered under both systems.

Since the late 1970's, the United States has established a network of bilateral social security agreements that coordinate the U.S. social security program with the comparable programs of other countries.

Binational social security agreements, referred to as "totalization agreements", have two main purposes, they:

• Eliminate dual social security taxation, the situation that occurs when a worker from one country works in another country and is required to pay social security taxes to both countries on the same earnings
• Help fill gaps in benefit protection for workers who have divided their careers between the United States and another country

In summary, wages paid to U.S. citizens and resident aliens who work in a foreign country for a U.S. employer are subject to social security and Medicare taxes. The employer must also match these taxes.

Whereas, and employee who works for a foreign affiliate of a U.S. employer is not subject to social security and Medicare taxes unless the employee elects coverage.

Expatriate employees, one who lives and works in a foreign country may be subject to foreign social security tax.

The U.S. currently has totalization agreements with over 25 countries: Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungry, Ireland, Italy, Japan, Korea (South) Luxembourg, the Netherlands, Norway Poland, Portugal, Slovak Republic , Spain, Sweden, Switzerland, and the United Kingdom.

Related Links

• Certified Payroll Administrator
• Paycheck Fundamentals
• Payroll Operations
• Payroll Reporting
• In-Person Payroll Seminar
• Payroll Compliance Webinars

Need training or resources in other areas? Try our other Training Center sites:

Accounting Banking Insurance Financial Services Real Estate Mortgage Safety