Totalization Agreements

Despite the fact that the agreements aim to allocate social security to the country where the worker is most attached, unusual situations occasionally arise, where strict enforcement of the rules of agreement would result in unusual or unjustified results. For this reason, each agreement contains a provision allowing the authorities of both countries to grant exemptions from the normal rules if both parties agree. An exception could be granted, for example, if the foreign award of a U.S. citizen was unexpectedly extended by a few months beyond the 5-year limit under the self-employed rule. In this case, the worker could benefit from ongoing U.S. coverage for the additional period. In order to eliminate the double taxation of taxes on social insurance and Medicare, the United States has entered into international agreements with 25 foreign countries (so-called “totalization agreements”). Totalization agreements exempt the federal Insurance Contributions Act (FICA) tax salaries, including social contributions and Medicare taxes, where a person`s income under a foreign country`s social security system is subject to similar taxes or charges for similar purposes. A similar exemption is due to taxes under the Employment Contributions Act (SECA). The agreements allow sSA to add U.S. and foreign coverage credits only if the worker has at least six-quarters of U.S.

coverage. Similarly, a person may need a minimum amount of coverage under the foreign system to have U.S. coverage accounted for in order to meet the conditions for granting foreign benefits. In recent years, attempts have been made to advance legislative proposals to amend Section 233 to broaden the scope of totalization to the benefit of U.S. interests, while maintaining the program`s traditional focus on actuarial balance and fiscal prudence. However, such legislative proposals have not been highly appreciated and, to date, totalisation partnerships continue to focus on Europe, with a few notable exceptions. The agreement with Italy is a departure from other US agreements because it does not regulate the people cashed in. As in other agreements, the basic criterion of coverage is the territorial rule. However, the coverage of foreign workers is mainly based on the nationality of the worker.

If an employed or self-employed U.S. citizen in Italy would be covered by U.S. Social Security without the agreement, he will remain covered by the U.S. program and exempt from Italian coverage and contributions. Although totalization agreements vary according to the partner country`s social security system, Table A-1 summarizes some common coverage situations for U.S. workers posted abroad to work. As a general rule, a worker is covered by the social security system of the country in which he works. However, totalization agreements indicate exceptions for certain categories of U.S. workers. Since totalization agreements are inherently reciprocal, these waivers apply equally to foreign workers in the United States.

Most TOTALization partners in the United States have more social security agreements in force than the United States with their 28 as of November 2018. By comparison, in 2014, Canada, France, Germany and the United Kingdom – which enter into treaty-to-treaty totalization agreements, thus avoiding some of the legal constraints of the U.S. process – had 57, 80, 50 and 53 agreements respectively (Leeuwenhaag 2014). As has already been said, the removal of double taxation of income in other countries could lead to greater foreign direct investment in the United States. In addition, thousands of beneficiaries who are not currently eligible for a pension from one or both countries could benefit from an extensive totalization program.