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. Under the tax equalization system, the employer pays both the foreign tax on the worker`s social security of $7,000 and the foreign tax on the worker. One of the general beliefs about the U.S. agreements is that they allow dual-coverage workers or their employers to choose the system to which they will contribute. That is not the case. The agreements also do not change the basic rules for covering the social security legislation of the participating countries, such as those that define covered income or work. They simply free workers from coverage under the system of either country if, if not, their work falls into both regimes. Conversely, if a foreign worker were sent from a foreign country to work in the United States, the same principles would generally apply. If a worker is not entitled to benefits in his country of origin or in the host country because the deadlines are not met, a totalization agreement between the two countries can provide a solution.
The agreement allows the worker to add up the time spent between the two sites and to recover social security benefits in one of the countries, provided that a minimum amount is reached in one or both countries. If, for example, in the United States, the combined credits in both countries allow the worker to meet the eligibility requirements, a partial benefit may be paid on the basis of the proportion of the person`s total career in the paying country. Double social security is a widespread problem for U.S. multinationals and their employees, since the U.S. Social Security program covers foreign workers – who arrive in the U.S. and go abroad – to a greater extent than the programs of most other countries. U.S. Social Security covers U.S. nationals and non-resident aliens who are employed by U.S. employers abroad, regardless of the duration of an employee`s intervention abroad, even if the employee was recruited abroad.
This extraterritorial coverage in the United States often results in double tax debt for employers and workers, since most countries generally receive social security contributions for all those who work in their territory. Eu rules apply to all EU Member States, i.e. where bilateral agreements exist, they are not mentioned here. As a precautionary measure, it should be noted that the derogation is relatively rare and is invoked only in mandatory cases. There are no plans to give workers or employers the freedom to regularly choose coverage that contradicts normal contractual rules. Currently, the United States has totalization agreements with the following countries: in situations where there is no totalization agreement between the two countries, there may be additional costs to the employer. These additional costs are covered only by the United States. If wages paid abroad are subject only to U.S. Social Security tax and are exempt from the foreign social security tax, the employer should receive a coverage certificate from the Office of International Programs of the Social Security Administration.