Social Security for US Expats and Dual-Citizens

By John Ohoe

SOCIAL SECURITY is a lifelong pension provided by the US government. It can be a critical source of income during one’s retirement years. Most important to note, it is a very attractive investment option for low to modest income earners – what one receives during retirement is far greater than what one contributes.

Unfortunately, many US expats do not plan appropriately, and will miss out on this great opportunity.

To qualify for Social Security, one needs to earn 40 credits. In the United States, most people work a job and pay Social Security taxes (automatically taken out of the paycheck). After about ten years of employment, one has acquired the necessary 40 credits.

US expats, however, are often unable to contribute to Social Security. This becomes an issue when one has earned less than the necessary 40 credits. Fortunately, there are ways to contribute to Social Security while working abroad.

Example
Jane is 30 years old. She has been living outside the US since she was 25, and does not have any plans to move back to the States. She works for a foreign company. Jane is interested in qualifying for Social Security, so she checks online at SSA.gov. Jane learns that she has earned 10 credits. She needs 30 additional credits.

If Jane earns a modest income from the foreign company, she may want to report her income as self-employment on her US tax return (certain requirements apply). Jane would not owe any income taxes on her tax return, if properly prepared. However, she would owe self-employment (SE) tax, which is how she would earn Social Security credits. SE tax is roughly 15% of the reported income.

Alternatively, Jane could start a small business (on the side). Any profits from that business could be reported as self-employment income. She would pay the 15% SE tax, and earn credits.

How fast?
A person can earn a maximum of 4 credits per year. For 2016, one needs to report at least $5,040 in income to earn 4 credits ($1,260 per credit). Therefore, one would pay approximately $770 in SE tax to acquire the 4 credits.

How many?
One needs 40 credits to qualify for Social Security. Find out how many credits you have earned by visiting SSA.gov and creating an account. You will need to provide a US mailing address (usually the last one on record with the federal government).

For more information on Social Security and other tax-related issues, contact me at: info@holaexpat.com.

John Ohe is an IRS Enrolled Agent and CFA. The answers provided in this article are for general information, and should not be construed as personal tax advice. Tax laws and regulations change frequently, and their application can vary widely based on the specific facts and circumstances involved.