Call us at

Self Employment Tax Totalization Agreement

Upon entering into a totalization agreement, the United States and a partner country agree to coordinate social security and performance bonus rules for people who have worked in both countries during their working lives. Totalization agreements have three main objectives. First, double taxation of social security is abolished when a worker and his employer are required to pay social security contributions to two countries with the same income. Second, they help fill the gaps in coverage records for people who have divided their careers between two countries by combining or spending the coverage periods earned in each country. Finally, the totalization agreements allow benefits to be paid in full to residents of both countries. Although these three objectives do not constitute all totalization agreements, they are by far the most visible and have the most impact on businesses and workers. All totalization agreements have certain characteristics, but the complexity and variation of the social security laws of our partner countries make each agreement unique. As U.S. commercial and commercial interests have spread around the world, the list of major trading partners increasingly includes countries that do not have a system that meets all U.S. legal requirements. This may penalize U.S. companies, workers and potential social security beneficiaries abroad who could benefit from such agreements.

Well, you probably already know that you can exclude your net income from the autonomy of the normal U.S. income tax. However, this does not imply that you can automatically exclude it from the self-employment tax. The first $117,000 of your combined net salary, tips and wages are subject to the 2014 self-employment tax, which was increased by $113,700 for 2013. From 2015, the tax rate amounts to 15.3%, divided into two parts: 2.9% for Medicare and 12.4% for social security (itself divided into two parts – the rate of 6.2% for employers and the rate of 6.2% for employees). Isolated licensees, independent contractors, partnership partners and LC members with multiple members are all required to pay an Independent Activity Tax (SE) with two components: the Medicare tax and the Social Security tax. Since employers generally determine how salaries should be withheld, independent taxpayers are responsible for determining their own debt for the SE. In this article, we will discuss how U.S. citizens and residents abroad are affected by the self-employment tax.

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 tax on the self-employed is a social security and Medicare tax on the net income of self-employment. You must pay self-employment tax if your net self-employed salary is at least $400. Whether you are already living abroad or planning to live abroad in the near future, it is important to check your tax obligations to ensure that you fully comply with U.S. tax law.