Totalization Agreements Help Employers Avoid Paying Duplicate Social Security Taxes
Totalization Agreements between the United States and other countries help employers avoid paying duplicate social security taxes. But how can such a situation arise? First, ask these questions:
- Are you a U.S. employer with operations in other foreign countries?
- Are you sending your employees to work temporarily across borders?
If the answer is yes to these questions, your company and its employees may benefit from bilateral social security agreements. These are agreements that the U.S. has concluded with certain other countries to address social security taxes. As a result, these agreements are usually called Totalization Agreements, and they eliminate dual country social security taxation.
GMS spoke with Erika Beddow, Business Development Manager at Global Mobility Tax, LLP (GMT). Erika has over 20 years of experience in public accounting and in the global mobility industry. Erika agreed to share her expert guidance on this issue.
What are Bilateral Social Security Totalization Agreements – and Who is Covered?
Sending employees to work on a temporary assignment outside of the U.S. can trigger social security taxation in the other country in addition to income taxation. The employer and employee will likely have social security tax liabilities in both the home and host country on the same earnings causing double taxation. The U.S. has entered into Totalization Agreements with several countries designed to eliminate the double taxation that can occur with respect to social security taxes.
How Does an Employer Apply for Relief Under U.S. Totalization Agreements?
While both employer and employee are responsible for reporting income and remitting social security taxes in both home and host countries, there is relief for double taxation for social security taxes. If the U.S. has a Totalization Agreement with the country your employee is working in, the company can apply for a “Certificate of Coverage” from the United States Social Security Administration.
The Certificate of Coverage serves as evidence that the employee temporarily working in another country meets the requirements of a Totalization Agreement shared by both countries. As a result, it allows both the company and the individual to be exempt from paying social security taxes in the country where they are working.
How long is a Certificate of Coverage Good For?
Once a Certificate of Coverage has been issued, it is good for the length of the assignment. It will typically max out at 5 years.
Are There Risks for Non-Compliance?
Yes, there are risks for non-compliance. Similar to the risks associated with not paying income tax, a company and/or individual may face corporate or individual fees, interest and other charges for not being compliant in paying social security taxes.
How Should an Employer Identify Their Specific Risks and Plan Strategically?
Employers should begin to identify their specific risks by planning early in the process. They should also engage with experts that understand Totalization Agreements. GMT can assess whether a Certificate of Coverage is beneficial. This will help employers to plan strategically, and ensure compliance while providing tax savings opportunities.
A thorough review of the assignment details and documents will help unlock opportunities. Applying for a Certificate of Coverage eliminates double taxation of social security taxes. This allows both the employer and employee to remain on the home country social security tax program. As a result, this also minimizes worldwide social security taxes.
What Does an Action Plan for Dealing With Totalization Agreements Consist of?
Employers should identify the employees that are eligible to apply for the Certificate of Coverage. Then, the next step is to submit the application for the Certificate of Coverage with the Social Security Administration. Employers should plan for how they will track the duration of the Certificate of Coverage. A company may need to send an employee to a location where there is no Totalization Agreement in place. In these situations, GMT can provide social security tax cost estimates and other advice. This will help employers to strategize and remain compliant.
GMT can assist employers with tracking employee information, including:
- Assignment location
- Certificate of Coverage availability
Employers would have ready access to this information through GMT. It is also used to ensure timely filing and renewal of the Certificate of Coverage, as needed.
GMT has a quick guide in PDF form for employers to help them understand some of the tax issues surrounding Certificates of Coverage and Totalization Agreements. GMT is always ready to help employers learn more about tax compliance and building internal processes to support their mobile workforce, and Erika states that she is available for preliminary consultations.
GMS’ team of domestic relocation experts has helped thousands of our clients learn about important issues such as tax compliance for their organization. Our mobility consulting team can help your company understand if it can eliminate double taxation for social security taxes through the benefit of Totalization Agreements with the assistance of the experts at Global Mobility Tax, LLP.
GMS was the first relocation company to register as a .com. The company also created the first online interactive tools and calculators, and revolutionized the entire relocation industry. GMS continues to set the industry pace as the pioneer in innovation and technology solutions with its proprietary MyRelocation® technology platform.
Contact our experts online to learn more about Totalization Agreements and Certificates of Coverage, or give us a call at 800.617.1904 or 480.922.0700 today.