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Does a US citizen who permanently lives abroad obligated to pay social security and medicare tax (employer and employee portions) on foreign earned income?

sanjit
Level 1

Is a US person (Citizen or Green Card holder) who permanently resides in another country, obligated to pay both employer and employee portion of social security and medicare tax on earned income?

If so, where which worksheet can be used to calculate such taxes.

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itonewbie
Level 14

If the individual is self-employed or is an employee of an American employer, based on statutory definition, and the country where the individual works does not have a totalization agreement with the US, yes.

If the individual is an employee of an American employer, based on statutory definition, the country where the individual works has a totalization agreement, and there is a certificate of coverage in place, the individual would be subject to US social security for that limited period as a detached worker.

If the individual is an employee of an entity that is not considered an American employer, the individual would not be subject to US social security unless the entity is a foreign affiliate for which a US employer has entered into a §3121(l) agreement with the Treasury Department - usually from some ancient times.

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Farewell AllStars, Hello Level 14! After all, what is life without numbers for a tax pro?

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TaxGuyBill
Level 11
Is the taxpayer an employee, or is the taxpayer an Independent Contractor?

Is the taxpayer paying Social Security to the other country, and if so, does the US have a Totalization Agreement with that country? https://www.irs.gov/individuals/international-taxpayers/totalization-agreements
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sanjit
Level 1
Taxpayer is an employee (earns wages) of non-American employer. The foreign country is India, which does not have a totalization agreement with US. Thanks in advance
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itonewbie
Level 14
If the taxpayer is an employee of a non-American employer, the individual will not be liable for FICA regardless of whether there is a totalization agreement unless a §3121(l) agreement is in effect.

Since P-Fund is considered a foreign pension/trust for US tax purposes rather than social security taxes (although it will most likely be treated as such for purposes of the totalization agreement once it is concluded), your client still has a whole host of issues to deal with.
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Farewell AllStars, Hello Level 14! After all, what is life without numbers for a tax pro?
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itonewbie
Level 14

If the individual is self-employed or is an employee of an American employer, based on statutory definition, and the country where the individual works does not have a totalization agreement with the US, yes.

If the individual is an employee of an American employer, based on statutory definition, the country where the individual works has a totalization agreement, and there is a certificate of coverage in place, the individual would be subject to US social security for that limited period as a detached worker.

If the individual is an employee of an entity that is not considered an American employer, the individual would not be subject to US social security unless the entity is a foreign affiliate for which a US employer has entered into a §3121(l) agreement with the Treasury Department - usually from some ancient times.

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Farewell AllStars, Hello Level 14! After all, what is life without numbers for a tax pro?

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sjrcpa
Level 12

If they do have to pay the SS and Medicare tax it is computed on Schedule SE.


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itonewbie
Level 14
Yes, if they are self-employed.  Otherwise, that's still managed through 941 and W-3/W-2 filed/issued by the American employer.
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Farewell AllStars, Hello Level 14! After all, what is life without numbers for a tax pro?
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sjrcpa
Level 12
Correct. Thanks for the clarification.

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