Social Security for US Expats and Dual-Citizens

By John Ohe, CFA and IRS Enrolled Agent. John is a partner at Hola Expat (www.holaexpat.com), which specializes in preparing tax returns for U.S. expats.

John Ohe 1

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.

Let’s use an example to illustrate:

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 quickly can one earn credits?

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.

To summarize:

Social Security can be an important source of income during one’s retirement years. It is a very attractive investment option for low to modest income earners. One needs 40 credits to qualify for Social Security. Find out how many credits you have earned.

For more information on Social Security and other tax-related issues, visit us at: holaexpat.com.

Other posts by this author:

2016 Key Tax Changes

U.S. Expats – College Planning

FATCA – Practical Guide

Free Money from the IRS – Child Tax Credit

Buying and Selling Real Estate (Foreign or Domestic) from a Tax Perspective

U.S. Expat Taxes – An Introduction

About Retire Early Lifestyle

Billy and Akaisha Kaderli retired two decades ago at the age of 38 and began traveling the world. As recognized retirement experts and internationally published authors on topics of finance and world travel, they have been interviewed about retirement issues by The Wall Street Journal, Kiplinger's Personal Finance Magazine, The Motley Fool Rule Your Retirement newsletter, nationally syndicated radio talk shows and countless newspapers and TV shows nationally and worldwide. They wrote the popular books The Adventurer's Guide to Early Retirement and Your Retirement Dream IS Possible.
This entry was posted in All Things Financial, Guest Blog Posts, Legal Matters, Travel Tips and Insight and tagged , , , , . Bookmark the permalink.

Comments are closed.