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). Suppose a worker born on January 2, 1951 applied for an old-age pension in January 2017. The worker worked in the United States for 8 years – from 1980 to 1987 – and earned the maximum amount of taxes subject to Social Security each year. As a result, the worker has accumulated 32 QCs, which is not enough to qualify for a superannuation only with U.S. coverage. However, this worker also covered in Switzerland. Since the United States and Switzerland have a totalization agreement and the worker has at least 6 QCs, it can be attributed to the worker`s Swiss coverage that he or she can benefit from a fully beneficiary benefit. The U.S. worker`s benefit is calculated in the steps described below. 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.