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Totalization Agreements With 26 Countries

Aggregation agreements are tax treaties specifically aimed at preventing the possibility of paying social security contributions to two countries simultaneously. Expats who live in one of these countries should always consult an expat tax specialist to find out how to benefit from the corresponding tabination agreement. While the tax treaties that the U.S. has with a hundred other countries in general do not prevent U.S. expats from filing U.S. taxes, there are several IRS exemptions that expats can claim when filing their U.S. tax return allowing them to pay taxes on the same income twice. The main exemptions are the foreign tax credit and the exclusion of income from foreign activity. What is most advantageous depends on several factors, such as where the expatriate resides, the tax rate in that country, their income level and the circumstances of their spouse, but in any case, expats must file a federal return to claim them. The agreements work by assigning social protection and thus tax liability to a single country, as provided for in the rules of the agreement.

These rules can vary greatly, but all agreements have some common characteristics, such as. B the allocation of coverage, so that workers pays social security taxes to one or the other country, and not to both. SSA cooperates with representatives of its aggregation partners throughout the negotiation process and after the entry into force of the agreement to ensure that workers are subject to the laws of the country to which they have the greatest economic connection. Since the 1970s, U.S. negotiators have entered into bilateral agreements with 28 major trading partners to coordinate social security and benefit plans for people who live and work in more than one country during their working lives. They are known as “totalization” agreements and resemble operating and structural contracts and are legally classified as agreements between Congress and the executive branch in accordance with the law. The agreements have three main objectives: to enable the elimination of double taxation of income, the protection of benefits for workers who have shared their careers between the United States and another country, and the full payment of benefits to residents of both countries. This article briefly describes the totalization agreements, tells their story, and examines the proposals for modernization and improvement.

Agreements to coordinate social security across national borders have been commonplace in Western Europe for decades. Below is a list of agreements entered into by the United States and the date of entry into force of each agreement. Some of these agreements were subsequently revised; the date indicated is the date of entry into force of the original agreement. When concluding a totalization agreement, the United States and a partner country agree to coordinate the rules on social security and payment of benefits for persons who have worked in both countries during their working lives. Totalization agreements have three main objectives. First, they remove the double taxation of social security that occurs when a worker and his employer are required to pay social security taxes to two countries with equal income. Second, they help fill gaps in the coverage records of people who have divided their careers between two countries by combining or adding up the coverage periods earned in each country. Finally, the aggregation agreements make it possible to pay full benefits to the inhabitants of both countries. Although these three objectives do not represent the set of aggregation agreements, they are by far the most visible and have the greatest impact on businesses and workers.

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Posted: 10/12/2021

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