Social Security Agreements and how they affect Americans living in the UK

As a US tax accountant based in Covent Garden and New York we make it our business to keep all of our clients informed and up to date on how the latest US tax changes will affect them.

The U.S. has entered into a number of agreements with countries worldwide named ‘Totalization Agreements’. The agreements aim to serve the purpose of avoiding double taxation on income in respects to social security taxes.

The Totalization agreements are a major player in deciding your tax liability as an American living abroad. The agreements decide whether American expat will be subject to the U.S. Social Security/ Medicare taxes, as well as whether an American citizen or resident alien should be subject to the social security taxes of the country they reside in.

The UK and Ireland are both included in the Totalization Agreements. Below is a full list of the countries included in the agreements:

  • Australia
  • Austria
  • Belgium
  • Canada
  • Chile
  • Czech Republic
  • Denmark
  • Finland
  • France
  • Germany
  • Greece
  • Hungary
  • Ireland
  • Italy
  • Japan
  • Luxembourg
  • Netherlands
  • Norway
  • Poland
  • Portugal
  • Slovak Republic
  • South Korea
  • Spain
  • Sweden
  • Switzerland
  • United Kingdom

There are a number of Social Security agreements that can have drastic effects on American expats tax liabilities. A provision to eliminate double social security taxation was first introduced in 1985. Such provisions help many Americans living in Britain, who otherwise would not be eligible for monthly retirement, disability or survivors benefit under the social security system of one of both countries. As well as helping Americans in Britain avoid paying Social Security taxes in both countries.

Before the agreements, employees, employers and self-employed workers could, in some circumstances, be required to pay Social Security taxes to both the U.S. and U.K on the same income.

Under the agreements, if you work in the U.S. you will typically be covered by the U.S., and so pay Social Security to the United States only. If you work as an employee in the U.K, you will be typically covered by the U.K and so pay your social security taxes to the U.K only.

Therefore, if you are a US expat working in the UK, the likelihood is that you will have to pay Social Security to the UK.

However if, for example, your UK employer sends you to work in the US with that employer or an affiliate in the US your tax is more complex. If you will be working in the US for five years or less, you will be covered by the UK and exempt from coverage in the US, this coverage changes if you surpass five years.

If you are self-employed and reside in the U.K. or the U.S.  you will generally be covered and taxed only in the country you reside.

Below we have an inserted a table put together by the SSA:

SSA

 

 

Certificates of Coverage

A certificate of coverage exists as proof on the exemption from Social Security of an individual on the same earnings in the other country.

U.K. employers must request a certificate of coverage from the US in order to provide material proof of the tax arrangements for their employee. The address to which the certificate should be requested from is:

Social Security Administration Office of International Programs

P.O. Box 17741

Baltimore, MD 21235- 7741

USA

Or by FAX

 (410) 996-1851

 

There is not a special form to file this request, the request must simply be in writing and provide the following information about the employee:

·      Full name of the employee

·      Date and Place of birth

·      Citizenship

·      Country of employees permanent residence

·      U.S. Social Security Number

·      Date of Employment

·      Country of Employment

·      Name and address of the employer in the U.S. and the U.K

·      Date of transfer and anticipated date of return

 

 

Contact us for expert tax advice for Americans Living Abroad