Complete Guide to Social Security Benefits for American Expats Living Abroad

By ZM Ishmurzina

For United States citizens, Social Security benefits play a large role in planning for retirement. This is a system that workers have been paying into since first entering the workforce. For Americans who choose to retire to another country rises the question of what will happen to their earned benefits. Currently approximately 350,000 American retirees receive Social Security benefits in foreign countries. Moreover, according to Travel Market Report, as many as 3.3 million American baby boomers are planning to retire abroad.

Many current and future American expatriates are puzzled by the same questions. We wrote earlier an article about social security taxes. Americans living abroad want to know the amount of social security benefits they are eligible for if they receive a foreign pension. Also, American expats would like to learn the options to receive social security payments while residing overseas. We get more questions from US citizens who plan to renounce US citizenship. Renouncing citizenship might affect social security benefits as well.

The following article will examine how an American living abroad will qualify for the benefits, the impact the benefits will have on US expatriate taxes and whether Social Security benefits can even be received while living overseas.

Social Security Benefits for American Expats Living Abroad

What are Social Security Eligibility Requirements in order to qualify for Social Security Benefits?

Throughout years in the workforce, US citizens earn credits towards Social Security benefits. The amount of credits needed to qualify for these benefits is dependent on the year that the person was born in. Workers born after 1929 will need at least 40 credits to qualify – the equivalent of 10 years of work.

  • The social security record is permanent so even if an individual ceases to work for a period of time, moves abroad or s/he was not required to pay Social Security taxes, the credits earned previously will still be intact.
  • Individuals who have divided their career between working in the United States and overseas may not be able to qualify to receive benefits if they did not work in the United States for the required amount of time or recently enough.

Social Security Administration has Social Security Calculator to determine the amount of social security benefits.

How are Social Security Benefits Taxed?

For both US citizens and residents, up to 85% of Social Security benefits are considered taxable income. The exact amount is dependent on the total plus any other income received. The higher the total earned income is, the higher the percentage paid as US expat taxes.

An individual earning more than $25,000 will be taxed on up to 50% of their benefits. Up to 85% of the benefit could be taxed under the following conditions:

  • One half of the benefits plus the total of all other income is in excess of $34,000. If married filing jointly that amount is increased to $44,000.
  • The individual is married, yet filing separately and has lived with their spouse at any point during the year.

There are some nations where the US Social Security benefit may be taxed as income. An expat is advised to consult with an expat tax specialist to determine if this applies to them. We wrote an article about social security taxes.

What is the Purpose of the Social Security Agreements between the United States and Other Countries?

Other countries have similar systems in place for their workers. Without these agreements, a US citizen working abroad in one of theses countries would face dual Social Security taxation. It would be possible for a worker employed overseas to pay social security taxes to two different countries on the same earnings. The agreement between nations eliminates this situation.

Self-employed American workers are also required to pay into the Social Security system. The self-employment tax rate is 15.3% of the net income from the business.

Individuals who are self-employed and living abroad are usually required to pay into the social security system of their host country. American expats might be required to pay to the USA and host country social security systems if there is no social security agreement in place between two countries. However, in this case foreign social security taxes paid by a US citizen in a foreign country (for example, New Zealand) may be creditable as an income tax.

Self-employed American expats residing in countries that do share a social security agreement with the United States will be exempt from US self-employment tax. However, only if they are required to pay self-employment tax in their country of residence. The American expat’s country of residence should be able to provide a certificate of coverage. This certificate will serve as a proof that the expat has contributed to another Social Security plan. The Certificate of Coverage is included in the expatriate tax return will be a Schedule SE and it indicates that the American expat is exempt from US expat taxes in accordance with the totalization agreement.

Social Security agreements are also beneficial to those US citizens who have worked both in the United States and abroad. These agreements help fill the gaps in benefit protection by allowing for partial benefits from the US or the foreign nation. This will be based on a combined or “totalized” credit system and is available for both employed and self-employed expats. In addition, the Social Security Administration (SSA) will count social security benefits earned in a foreign country for US expats with a small amount of US coverage that does not qualify them for benefits. This is only if those benefits were earned in the country with a totalization agreement. This country will also verify the expat credits earned in the US if they are necessary to qualify for benefits in that country.

If combining the credits from both nations allows the expat to meet the requirements for social security benefits, a partial benefit will be issued. This will be based on the proportion of work that was completed in the country that is paying the social security benefits. Under the agreement, the SSA is able to totalize their credits with those of a foreign nation only if the worker has at minimum six quarters of US coverage. The foreign nation may also impose a minimum amount of coverage it will allow in order for US coverage to be counted towards its eligibility requirements.

Which Foreign Nations Have Entered into a Social Security Agreement with the United States?

A total of 24 countries around the world have enacted a Social Security agreement with the United States. This countries will work with the US and its expats to prevent dual taxation of Social Security benefits. This article covers the list of social security agreements between the USA and other countries.

Can American expatriate receive Social Security Payments while residing abroad?

In most cases, a qualifying US citizen may receive social security benefits when residing in a foreign country with a few exceptions.

There is legislation in place that prohibits the SSA from sending Social Security payments to Cuba and North Korea. Once the US citizen leaves these countries, the SSA will remit all withheld payments. Non-US citizens who qualify for social security benefits will not be able to receive the benefits accrued while inside of the restricted country.

Other countries in which the SSA may not send payments include:
• Azerbaijan
• Belarus
• Georgia
• Kazakhstan
• Kyrgyzstan
• Moldova
• Tajikistan
• Turkmenistan
• Ukraine
• Uzbekistan
• Vietnam

The SSA is also prohibited from sending payments to a third party except under certain conditions. To qualify for an exception the expat would have to agree to the conditions of payment. This would include presentation at a US Embassy each month to pick up those Social Security payments.

Who Qualifies to be an American Citizen Outside of the United States?

An individual is considered to be outside of the United States if they are not residing in one of the 50 states, the District of Columbia, Puerto Rico, the US Virgin Islands, Guam, the Northern Mariana Islands or American Samoa. They could also qualify if they have not been in any of the above mentioned places for at least 30 continual days.

What Do Expats Have to Do to Protect Their Right to Social Security Benefits?

Expats residing abroad will periodically receive notifications from the SSA requesting updated information. That information is used to determine if the individual is still eligible to receive benefits. It is imperative that this form be returned as quickly as possible to avoid an interruption in payments.

Any changes should be reported immediately to the SSA if they could potentially affect payments. Failure to do so or making a false statement could result in a financial penalty or imprisonment. Payments could also be lost for a failure to report any changes in status.

What are the payment options to receive social security payments?

Payment options. There are several options to receive social security benefits while living abroad. One option is a debit card account under the DirectExpress card program. The second option (and the most popular) is electronic payment. Electronic payments can be made to a U.S. or foreign bank account in multiple countries. The list of these countries is extensive:

1. Anguilla, Antigua & Barbuda, Australia, Austria
2. Bahama Islands, Barbados, Belgium, British Virgin Islands
3. Canada, Cayman Islands, Cyprus
4. Denmark, Dominican Republic
5. Estonia
6. Finland, France
7. Germany, Greece, Grenada
8. Haiti, Hong Kong, Hungary
9. India, Ireland, Israel, Italy
10. Jamaica, Japan
11. Malta, Mexico
12. Netherlands, Netherlands Antilles, New Zealand, Norway
13. Panama, Poland, Portugal
14. St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, South Africa, Spain, Sweden, Switzerland
15. Trinidad-Tobago
16. United Kingdom

Are Non-US Citizens Eligible for Social Security Benefits? How can Renunciation affect Social Security?

Individuals who are citizens of one of the 24 nations in which the United States has secured a Social Security agreement with can receive their social security benefits as long as they are eligible for them. The amount of time spent outside of the United States will have no bearing.

Citizens of the following countries may also qualify for their payments from the SSA as long as they are outside of the United States. The only exception would be if they were receiving dependent or survivor benefits.

Individuals who are not US citizens or a citizen of any of the nations mentioned in the above link will have their social security benefits stopped by the SSA if they are found to have been outside of the United States for six calendar months. Exceptions to this may be made in the following circumstances:

  • The individual qualified for Social Security benefits before December of 1956.
  • The individual is an active member of the United States Military or Navy.
  • Railroad work is a part of the registered Social Security record of the individual for whom the benefit was originally assigned to.
  • The original beneficiary died while serving in the US Military or as a result of a disability that was connected with their service. In this case, the individual was not dishonorably discharged.
  • The individual is a resident of one of the countries in which the United States has a Social Security agreement.

In the event that an individual’s payments are stopped, the Social Security Administration will not be able to commence them again until that person returns to the United States and stays for a period of no less than one full calendar month. That individual must be in the United States on the first minute of the first day of the month and remain in the United States until the last minute of the last day of that same month (for example, if the person arrives on June 15, 2014, then s/he must be present in the USA until August 1 to qualify). This is the only way to qualify as being present for an entire month. The SSA reserves the right to ask for proof that the person was inside of the US for that entire period.

What are Social Security Benefits for Children and Social Security Survivor Benefits?

For dependents or survivors of persons who were eligible for Social Security benefits the qualifications are slightly different. They are subject to the residency requirement which for non-US citizens means they must have resided inside of the United States for at least five years in order to get benefits abroad. In that time period the family relationship on which those benefits are based must have been in existence. Dependent children can meet that requirement on their own or the SSA can consider it met if the original beneficiary or other parent has met it.

The SSA is not obligated to pay dependent children who were adopted in a foreign country while they are residents of another nation, even if that child can meet the residency requirements. The residency requirement can be waived however in the following circumstances:

  • The beneficiary was eligible initially before the 1st of January, 1985.
  • The benefit is coming from an individual who died while serving in the US Military or from an injury or disease that was a direct result of that service.
  • The beneficiary is a citizen of a country where the amount of time spent outside of the US is of no consequence.
  • The beneficiary is a resident of a one of the nations in which the US has a Social Security agreement.

What are Social Security Spousal Benefits if an American expat is married to a foreign spouse?

We wrote an article about social security spousal benefits in case of the foreign spouse.

Conclusion
American retirees must review all expat tax issues before they move abroad. American expatriates who need help with US expat tax preparation, overseas taxes, foreign tax credit, social security issues affecting U.S. citizens living abroad, FBAR, FATCA must consult an expat tax CPA that provides international tax services. Expat tax experts at Artio Partners are here to help you.