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Social Security Agreements With Other Countries

As international mobility has increased in recent decades, more and more countries have developed such agreements. Nevertheless, more work is needed to implement effective mechanisms to protect the social rights of migrant workers. The detached house rule may apply if the U.S. employer transfers a worker to work at a foreign branch or in one of its foreign subsidiaries. However, in order for U.S. coverage to continue when a transferred employee works for a foreign subsidiary, the U.S. employer must have entered into a Section 3121 (l) agreement with the U.S. Treasury Department with respect to the foreign subsidiary. However, under tax law in many countries, an employer`s payment of a worker`s share in a social security contribution is considered a taxable allowance for the worker, which increases the worker`s income tax obligation. The tax equalization system generally provides that the employer also pays this additional income tax, which serves to further increase the worker`s taxable income and tax debt.

The employer pays the extra tax again, etc., etc. Paying double social security contributions is particularly expensive for companies that offer ”tax compensation” to their expatriate workers. A company that sends an employee to work in another country often ensures that the assignment will not result in a reduction in the employee`s after-tax income. As a result, employers who have tax compensation programs generally agree to pay both the employer`s share and the share of the host country`s social security contributions on behalf of their transferred workers. When SSA issues a certificate certifying U.S. coverage, a copy of the certificate must normally be presented to the relevant foreign authorities to prove the right to foreign exemption for the U.S. worker and employer. If the other country issues a certificate certifying that the worker is covered by the foreign plan, the employer can immediately stop withholding and paying U.S. social security taxes on the worker`s income. The certificate should only be kept in the employer`s records, so that it can be established in case the Internal Revenue Service questions the reasons why no tax is paid for the worker.

An independent U.S. citizen or resident must attach a photocopy of the foreign certificate to the United States.

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