LegiStorm

Summary:

International Social Security agreements are bilateral agreements primarily intended to eliminate dual Social Security taxation based on the same work and provide benefit protection for workers who divide their careers between the United States and a foreign country. Most jobs in the United States are covered by Social Security. In addition, the Social Security Act extends Social Security coverage to U.S. citizens and resident aliens who are employed abroad by U.S. companies as well as those who are self-employed in a foreign country. Generally, a U.S. worker abroad and his or her employer would be required to contribute both to the U.S. Social Security system and the Social Security system of the country where the work is performed based on the same work. International agreements eliminate dual Social Security taxation in these circumstances by allowing workers and their employers to contribute to only one Social Security system (either the U.S. or the foreign system depending on the terms of the agreement). In addition, international agreements allow workers who divide their careers between the United States and a foreign country to fill gaps in Social Security coverage by combining work credits under each country's system to qualify for benefits under one or both systems. If a worker qualifies for benefits based on combined (totalized) work credits, the benefit payable under either system is prorated to take into account the actual period during which the worker was covered by that system. By eliminating dual Social Security taxation, international agreements reduce the cost of doing business abroad. As a result, they can affect the competitiveness and profitability of U.S. companies with foreign operations and promote investment in the United States by foreign companies. In addition, international agreements affect the application of certain provisions of the Social Security Act, including the alien nonpayment provision. The alien nonpayment provision places restrictions on the payment of U.S. Social Security benefits to noncitizens who reside outside the United States, with broad exceptions. These payment restrictions may be waived for beneficiaries who are residents of a country with which the United States has an agreement. Since 1977, the President has had the authority to negotiate Social Security agreements with foreign countries. Currently, there are 24 Social Security agreements in force. Another agreement (with Mexico) has been signed, but is not in force. In December 2007, about $28 million was paid in monthly benefits to about 146,200 recipients under U.S. Social Security agreements. Many observers agree that international Social Security agreements can be beneficial for U.S. companies and workers. However, some policymakers have expressed concerns about the agreements. Because the agreements impose a cost to the U.S. Social Security system, some policymakers point to the need for greater assurances that the data relied upon by the United States to administer the agreements are complete and accurate, a condition necessary to protect the Social Security trust funds from improper payments. In addition, they point to concerns about the role of Congress in the approval process for potential agreements, as well as the need for enhanced reporting requirements and periodic evaluation of agreements in force. These and other concerns are reflected in legislative proposals such as S. 42 and H.R. 132 in the 111th Congress. This report provides an overview of the purpose and operation of international Social Security agreements. In addition, it provides a discussion of the effects of agreements on selected provisions of the Social Security Act and concerns raised by some policymakers about the agreements. This report will be updated to reflect legislative activity or other developments.