Marriage to a foreign national or working abroad can generate many advantages. You could learn about new cultures, viewpoints, and lifestyles.
International marital and employment arrangements also generate their share of changes in U.S. federal benefits, tax considerations, and estate planning. Understanding these requirements can prevent confusing, and potentially costly, surprises down the road.
Social Security Requirements
When it comes to Social Security benefits, rules can change on the international front.
Suppose you’re a U.S. citizen who lives and works abroad. In that case, you’ll likely receive your full Social Security benefits as long as the country you work and live in has a Social Security Agreement (known as a Totalization Agreement) with the United States.
The Totalization Agreement covers most European countries, parts of Asia, and Australia. It’s in place to eliminate dual coverage (benefits from both the foreign country and the U.S.) and dual taxation (paying Social Security taxes and similar taxes to the country where you work).
Can your non-U.S. spouse qualify for Social Security survivor benefits if you die? The answer is yes, under the following parameters:
- You and your foreign spouse lived in the United States for at least five (non-consecutive) years as a married couple.
- Your foreign spouse is a resident of a country that has a Totalization Agreement with the United States.
However, if your spouse isn’t a green card holder, Social Security payments could be suspended if they live outside the U.S. for six consecutive months or more.
To clarify Social Security survivor, retirement, or disability payments, check with a CERTIFIED FINANCIAL PLANNER® (CFP®) who knows the specific country. You can also access the Social Security Administration’s screening tool for additional information.
Income Tax Implications — U.S. and Abroad
The tax implications of paying into and receiving Social Security depend on your “person” status. Specifically, you’re considered a U.S. “person” if you’re a citizen or resident alien of the United States.
Taxes owed
As a U.S. person, your income is subject to federal tax, no matter where you live and work. Furthermore, Social Security and Medicare taxes are taken from your wages if you’re outside the U.S. and are working:
- Overseas for an American employer.
- In a country with a Totalization Agreement, and the agreement notes that your foreign employment is subject to these taxes.
- For an American employer’s foreign affiliate under a voluntary agreement between the employer and the U.S. Treasury Department.
On the income tax front, you could be subject to dual taxation. This means you might be required to pay income taxes to the United States and the country where you’re employed. One way around this is the foreign earned income exclusion. Your income could be excluded from your U.S. federal tax return if you qualify.
Benefits taxed
Your Social Security benefits might be taxed if you live in the United States, though you likely won’t pay taxes on more than 85% of those benefits. The same holds if you’re a U.S. person living abroad.
The situation could be different for your foreign spouse. If said spouse receives Social Security survivor benefits, they can count on a 30% flat income tax being withheld from 85% of those benefits.
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Estate Planning — Different Rules and Regulations
Estate planning in the U.S. can be somewhat complex. The complexity ratchets up if you live abroad or have a foreign spouse.
Furthermore, tax and legal implications connected with probate, gift taxes, and inheritances differ between countries. For instance, in some countries, you might be unable to decide who receives your assets when you die. Your assets might automatically go to your next-of-kin or blood relatives.
When considering international estate planning, it’s essential to understand the rules connected with nationality, residency, citizenship, and domicile. Be sure to work with a CFP® with in-depth knowledge of a country’s regulations.
Know What’s Involved
On a practical note, cross-border marriages and living or working abroad have implications for federal benefits, retirement planning and tax considerations. Understanding U.S. and foreign regulations is important for effective estate and retirement planning.
The qualified experts at Serving Those Who Serve can aid in your benefits, retirement and estate planning, whether you and your foreign spouse reside in the U.S. or another country. To set up a free consultation, contact the team at [email protected] or visit the website.
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
