Social Security and Medicare Taxes
The location of your employer, where you are working, and agreements that the US has with other countries, called Totalization Agreements, determine if you are subject to FICA. You may also be subject to social taxes at your host location. Your employer's decisions control how these taxes are applied. The following FAQ explain each of these factors in more detail.
Are my wages from working outside the states subject to FICA?
Maybe. The location of your employer determines if you are subject to Social Security and Medicare taxes. Employees of a foreign company are not subject to FICA while working outside the states. Employees of a US company pay these taxes.
What if my foreign employer is an affiliate of a US company?
Your wages will not be subject to Social Security and Medicare taxes unless an election has been made under Sec. 3121(l). This election extends FICA coverage to the affiliate's American employees . If your employer has made this election, you will see FICA taxes reported on your W-2 (boxes 4 and 6).
Can I opt out of FICA if my employer has a 3121(l) election in place?
No. This is an employer election.
Can I voluntarily pay Social Security while working for a foreign employer abroad?
No. This is an employer administered tax. You cannot pay this tax yourself. Your wages cannot be reported as self-employment income on your tax return. The earnings will not count towards your retirement benefits under Social Security.
Will I have state unemployment benefits if I don't pay FICA?
Probably not. While FICA and FUTA are totally separate taxes, the laws that governs each are very similar. Unemployment taxes can only be paid by the employer.
Do I have to pay both foreign social tax and FICA on the same income?
If the US and the host country have a Totalization Agreement in place, then you only pay social tax to one of the countries. If not, then you may have to pay both. See the Totalization Agreements page for more information.
Can I claim a credit for foreign social taxes on my US return?
If your host country has a Totalization Agreement with the US, then the foreign social taxes cannot be claimed as a credit on your US tax return. If no agreement is in place, then the social taxes will usually be creditable on your tax return the same as an income tax. The rules are complex so consult your tax advisor before claiming the credit.
I am self-employed. Do I have to pay self-employment tax even though I am working abroad?
Yes. A self-employed person is considered to be working for an American employer so self-employment tax applies even when working abroad.
How do I know if I am an employee or independent contractor?
Please note that the term "contractor" is quite different from "independent contractor." You may be considered a "contractor" because your employer has a contract to perform services for another company or government entity. Your employer may also consider you as a contract employee with limited benefits. In both situations, you are still an employee and not an independent contractor.
This distinction can be difficult in an international context as non-US employers do not use the same terminology as the IRS, and no US tax forms (such as a W-2 or 1099) have been submitted to report the payments.
- Qualifying for the Foreign Earned Income Exclusions
- ►General Questions
- ►Physical Presence Test
- ►Counting Days in the US, Abroad and Traveling
- ►Bona Fide Residence
- ►War Zones and Military Contractors
- Income and Social Tax Withholding
- ►Social Security and Medicare Taxes
- ►Income Tax Withholding
- ►Hypothetical Tax
- ►Totalization Agreements
- ►Due Dates and Extensions
- ►Expatriate Tax Forms
- ►IRS Addresses
- ►Other Resources