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Social Security for US Expats and Dual-Citizens

John Ohe

You may be working abroad, but did you know you can still earn credit for Social Security? Retirement may seem far off, but it’s never too soon to plan.

Social Security for US Expats and Dual-Citizens

Have you thought about your retirement savings yet? (Photo: Pixabay)

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 Hola Expat

This article was written by John Ohe (IRS Enrolled Agent and CFA). John is a partner at Hola Expat, a firm that specializes in preparing tax returns for U.S. expats.

If you would like to submit a question, email: info@holaexpat.com.

Disclaimer: 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.

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