Totalization agreements are international tax treaties designed to eliminate double taxation on social security and Medicare taxes in the United States. These agreements are made to house foreign workers who pay FICA taxes but do not receive social security or Medicare benefits after the age of 65. The agreements are between the United States and other individual countries and international taxpayers who earn money in the United States. The goal of the totalization agreements is to eliminate the double taxation of a foreigner`s income in the United States and to provide social security benefits commensurate with the same foreign workers. Whether a worker is covered either by Social Security and Medicare in the United States or by the social security system in a foreign country is where the worker resides and whether the employment in a foreign country is short-term or long-term. As of August 2017, the United States has 26 active totalization agreements. A totalization agreement has not yet been reached. Normally, people who are not U.S. citizens can receive U.S. Social Security benefits when they are outside the U.S., only if they meet certain requirements. Under the agreement, you can receive benefits if you are a U.S. citizen or a German citizen, a refugee, stateless person or anyone entitled to dependent or survivor benefits based on the social security record of one of these people, as long as you reside in Germany. If you are not a German citizen of the United States and you live in another country, you cannot receive benefits.
Your Payment While You Are Outside The United States (Publication No. 05-10137) explains the restrictions placed on U.S. services. Self-employed workers who, in the absence of the agreement, would have to pay social security contributions to both countries are subject to special rules (see table below). To submit a right to U.S. or German benefits as part of the agreement, follow the instructions in the “Benefits Rights” section. Workers, employers and the self-employed may, in certain circumstances, be required, in certain circumstances, to pay social security contributions for the same work, both in the United States and in Germany. Self-employed workers in a foreign country are also subject to totalisation agreements. These workers are generally subject to the social security coverage of their place of residence. For example, an independent U.S.
citizen living in Sweden is covered by the Swedish social security system. However, there are exceptions to this part of the system.  Under all agreements, with the exception of one of the current agreements, a “temporary” allowance may not last more than five years. The agreement with Italy allows for the duration of fixed-term contracts for an indeterminate period. The table below presents the different types of social security benefits that are paid under social security schemes in the United States and Germany and briefly outlines the eligibility requirements of individual schemes. If you do not qualify for these benefits, the agreement can help you qualify (see “How Benefits Can Be Paid” below). The impact of these taxes on foreigners is a problem with the wage tax system for the financing of old age benefits. If someone from a foreign country works for a U.S.
company in the U.S., that employee should pay FICA taxes. However, because the worker is a foreigner, the worker is not entitled to U.S. old-age benefits to which only U.S. citizens or permanent residents of the United States are entitled.   This would be an unfair situation insofar as a foreigner pays a system from which he cannot benefit.