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  • Writer's pictureLewis Grunfeld, CPA

Expats and Social Security: Navigating Social Security Benefits and Taxes Abroad

Are you dreaming of living abroad or retiring on a tropical beach? While the allure of living abroad is undeniable, it's crucial to understand how your move impacts your Social Security benefits and obligations. Let's dive into the essentials every expat should know about Social Security, from receiving benefits abroad to handling taxes and navigating international agreements.


Key Takeaways:

  • Eligibility for Social Security Abroad: Expats can receive Social Security benefits overseas with sufficient U.S. work credits, but direct deposit options vary by country.

  • Taxation on Benefits: Social Security benefits may be taxable for expats, depending on global income levels. Tax treaties can help avoid double taxation.

  • Self-Employment Tax Obligations: Self-employed expats face a 15.3% tax on business profits for Social Security and Medicare, with potential exemptions under totalization agreements.


Can Expats Collect Social Security Benefits?

Yes, expats are eligible to receive Social Security benefits while living overseas, provided they've accumulated enough work credits in the U.S. system (typically 40 credits, equivalent to 10 years of work). However, the process isn't as straightforward as it is stateside. The Social Security Administration (SSA) has specific guidelines for sending payments abroad, and not every country is on the list where direct deposit is available.

The SSA's website has a list of countries where direct deposit payments are available. In countries where direct deposit isn't an option, checks can be mailed, but this method poses its own set of challenges, from postal reliability to bank deposit fees.

How Will the IRS Tax My Social Security Payments?

The taxation of Social Security benefits for expats follows similar rules to those for residents within the U.S. If your global income exceeds certain thresholds, a portion of your Social Security benefits may be taxable. The IRS includes a formula to determine the taxable portion, considering both your U.S. and foreign income.

Filing a U.S. tax return as an expat, you'll report your worldwide income, including Social Security benefits. The good news is that tax treaties can mitigate double taxation, though they don't always apply to Social Security benefits. Consulting with an expat tax professional is wise to navigate these complexities.

Can Foreign Spouses of US Expats Collect Social Security?

Foreign spouses of U.S. expats can indeed be eligible for Social Security benefits, either through their own work record or as a dependent or survivor. The eligibility criteria for foreign spouses are nuanced, involving the length of the marriage and whether the spouse has a U.S. work history.

For spouses without a U.S. work record, benefits depend on the expat's earning history. However, the SSA imposes certain residency requirements and restrictions based on nationality and the country of residence. Again, checking the SSA's guidelines or consulting with a professional can clarify individual situations.

What is the Windfall Elimination Provision?

The windfall elimination provision (WEP) plays a crucial role for expatriates who've earned pensions from international work not covered by U.S. Social Security. Essentially, the WEP adjusts the formula for calculating Social Security benefits to prevent those who have pensions from non-covered employment—such as jobs abroad or with international organizations—from receiving disproportionately high Social Security payments. The adjustment is based on your work history, reducing the percentage of earnings that Social Security considers, especially if you haven't contributed to Social Security for 30 years or more. For expats, this means that while planning for retirement, it's important to understand how your international pension might affect your Social Security benefits, ensuring you're prepared for the financial impact of the WEP on your retirement income.

Expert Insights: Expats should start planning early for the impact of the Windfall Elimination Provision on their Social Security benefits. Assessing your international pension and work history can help prepare for any adjustments to your expected income.

Social Security Tax for Self-Employed Expats

U.S. expatriates who are self-employed, including entrepreneurs and digital nomads, are generally obligated to pay a self-employment tax at a rate of 15.3% on their business profits. This rate combines Social Security (12.4%) and Medicare (2.9%) taxes. For those residing in countries with a U.S. totalization agreement, there's an opportunity to exempt income from U.S. self-employment tax, paying social security taxes to the host country instead. However, the foreign earned income exclusion and foreign tax credit do not apply to self-employment tax.

Need Help With Filing Your U.S. Taxes From Abroad?

At CPAs for Expats, we specialize in helping US expats stay compliant with their US taxes. Our low fees and 4.9/5 rating on independent review platforms attests to our commitment to excellence and client satisfaction. Contact us today, and let our tax experts simplify your life and taxes.

Article by Lewis Grunfeld, CPA

Lewis Grunfeld, CPA, is a renowned expert in international and U.S. expat taxation, with expertise spanning over ten years. He has successfully helped thousands of expats around the world navigate complex international U.S. tax regulations, and achieve significant tax savings. His work is driven by a strongly rooted passion for assisting the expat community through a wide range of tax situations, ensuring tailored solutions for each unique situation.


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