I. Domestic Administration of Social Security Taxation and the Scope of International Coordination – continued

b. The Second Aspect: Benefits Eligibility

In general, any individual is eligible to receive United States social security benefits at the age of sixty-two if he is considered “fully insured” and has filed the necessary paperwork. An individual is generally considered fully insured when he accumulates coverage, by earning wages or self-employment income that has been subject to social security contribution requirements, for a total of forty quarters.

Several sections of the Social Security Act provide for increases and decreases in benefit amounts. For example, if a fully insured person elects to defer her retirement, she may be eligible for an increase in social security benefits. On the other hand, benefits may be reduced or suspended if the recipient has other earnings, receives other pension payments or foreign social security payments, retires before full retirement age, or, in less typical cases, is convicted of certain crimes.

Much to the surprise of many taxpayers, maintaining United States residency is not generally required in order to receive social security benefits. Citizens or nationals of the United States who are otherwise entitled to social security benefits may continue to receive their benefits while outside the United States, but living abroad for more than six months may cause suspension of benefits in some cases. These suspension rules generally do not apply when a social security totalization agreement applies.

In this second aspect of social security, international coordination is needed to prevent two things. First, the possibility that workers may lose their right to receive benefits if they divide their careers between two or more countries. And second, to prevent countries from imposing restrictions on benefits eligibility based solely on the taxpayer’s residence or presence in the other country when the benefits are payable.

Unlike contributions, benefits are coordinated exclusively through Social Security Totalization Agreements (SSTAs) rather than tax treaties. This was the initial reason for creating SSTAs and remains the primary goal. Indeed, the SSA states that SSTAs are designed to “help people who have worked in both the United States and the other country, but who have not worked long enough in one country or the other to qualify for social security benefits.”

Coordination is achieved by “totalizing,” or combining coverage periods in different countries, to the extent necessary to satisfy the quarters of coverage requirement. The Social Security Act authorizes the President to enter into totalization agreements that allow workers to combine periods during which they made social security contributions to more than one country. SSTAs coordinate benefits by allowing work performed overseas under a foreign social security system to be counted for purposes of meeting eligibility requirements for receiving benefits under the other country’s social security system.

Under the Social Security Act, the United States may count credits earned by working in the other country towards the forty-credit requirement for United States social security eligibility.

An important distinction pertaining to totalization must be made. In this area, the goal of totalization is to combine working periods to establish eligibility, not to shift the entire burden of providing benefits to one country or another. Under this system, an individual may qualify for separate benefit payments from multiple countries. If an individual earns sufficient credits in each of two countries so as to qualify separately for social security benefits in full in each country, United States social security benefits may be reduced by some amount of the foreign benefits received. If the individual qualifies only by combining credits from two countries under a totalization agreement, benefits are calculated according to the SSTA rather than the Social Security Act.

In accordance with Circular 230 Disclosure