Ep 23: Applying For Social Security as An American Abroad? We Answer Your FAQs.
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Millions of Americans live overseas and are currently receiving social security.
In this episode, we discuss the eligibility criteria and process for receiving social security benefits as a U.S. citizen living abroad.
We cover topics such as the 10-year work requirement, how to apply for benefits from abroad, and the taxation of social security income.
We also mention the importance of totalization agreements and tax treaties in determining how benefits are taxed.
We emphasize the need for careful planning and consulting with professionals when considering social security benefits while living abroad.
The speakers' views and opinions discussed in this episode should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.
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Speaker 1 (00:06):
Welcome to the International Money Cafe podcast, the show where we filter out the noise on cross-border taxes, finances, and life in the us. I'm your host, Jen Hams, certified financial planner, founder and owner of elgon Financial Advisors.
Speaker 2 (00:21):
And I'm your host, man Nadi, enrolled agent, owner and founder of Amman Tax and Business Services. Join us on this journey as we explore the unique challenges faced by inbound outbound families and businesses on taxes, compliance and financial planning. Let's get to the show.
Will You Receive Social Security Benefits when You Retire Abroad?
Speaker 1 (00:43):
We are back with another episode where as we talk a lot about, we filter out the noise on a lot of things you read about on the internet as it pertains to finances for foreign born nationals, foreign nationals and work visas and experts overseas. So currently working with a client who's about to leave the US and one of the questions that's come up is are they going to be able to receive the social security benefits when they get to retire abroad? And the one thing I do want to clarify or talk about is when you are on a work visa for example, meaning you're not a citizen, you are still able to get your social security assuming you meet all the criteria, but you have to jump through a few extra hopes. And so in today's conversation we want to talk about what it's like, what it means to actually get your social security as a US citizen abroad.
Speaker 1 (01:50):
And one thing I do want to call out is being outside the US is very different for similar to what we'll do when we are doing tax residency calculations. So they define being outside the US as being outside the 50 states and only for 30 days in a row. So that's something you kind of want to make a lot of. So today, mana, let's talk about what it's like to draw on social security income. We want to talk about the eligibility criteria, we want to talk about full retirement age, we want to talk about how to apply, how to receive it. And of course, because this is your area Mana, I'd love for you to talk about taxation of that income and also talk about the totalization agreement. So let's jump into it and what I'd love Manasa for you to explain is what's the eligibility criteria to get your social security as a US citizen abroad?
What is the Eligibility Criteria to Get Your Social Security as a U.S. Citizen Abroad?
Speaker 2 (02:47):
Yes, Jane, I was reading recently and I believe US News and World Report has come out with the statistics, although they are from 22 data, I believe there are more than half a million beneficiaries outside the US and they pay out or the Social Security administration pays out about 6.1 billion in benefits annually. So we can see that there are already a lot of people who have retired abroad and are getting these benefits, although less precise than usual. The State Department estimates that about 9 million Americans live abroad and they suggest that 5 million of these have retired abroad and about 12% of those nations, 45 million retirees are abroad. So definitely like you said, we do need to filter out all of the extraneous information on the web and we are going to try to get this information to our listeners today. So to start off with, what is your eligibility criteria?
Eligibility Criteria for a U.S. Citizen Living Abroad
Speaker 2 (04:09):
So today we are going to focus on you being a US citizen living abroad. And if you are then you need to have had 40 quarters or 40 credits, which kind of approximately translates to 10 years of work or four quarters per year. And this is guaranteed that you will get social security benefits once you have passed this 10 year minimum. Let's break that down further. You can earn up to four credits per year based on your total wages and self-employment income in 2024. You need to earn $6,920 per quarter to earn all four credits and this can be split up into four quarters or all earn in the same quarter. It doesn't matter the $6,920 is what you need to remember. And also the credits remain on your social security record even if you change jobs or stop working. So Jane and I, we encourage our clients and we do that for you too, if you, you're listening to this episode is you should create an account online because that helps you keep track of your social security credits and also make sure that all of your employment has been recorded.
Speaker 2 (05:43):
If you have earned more than the maximum wage limit for the year, your benefits do not increase. So there's the calculation of the benefits that kind of go into this. So you might be making more money than the max wage limit, but your benefits will not increase because of that. And also today's episode will focus on credits which are for retirement. There's different criteria for applying for disability benefits or survival benefits or spousal benefits. So if you want to get started, I would suggest going to SSA dot gob, which is the Social Security administration's website. There is a tool there called the payment abroad screening tool and that is usually a good place to get started and there are other criteria which you're going to jump into, but that's a good place to start. And then you have to think of many other things like full retirement age for example, right, Jane?
Current Retirement Age
Speaker 1 (06:51):
Yeah. And so FRA is for retirement age. The current for retirement age is attaining age 62 in 2024, I don't think, I don't know where we are, but anyway, it doesn't matter in terms of our age, but the age for Medicare eligibility remains at 65. That is if you are born in 1960 or later. So you go to this site, you figure out when your retirement age is and what you can get. But one thing I do want to point out is you can apply before the four retirement age, the 67. The question is should you apply to get this money before the FRA or the full retirement age? It's a very personal decision. I do want to point out is if you apply to get the money before your full retirement age, you will get a reduced amount and it could go as low as by 30%.
Speaker 1 (07:52):
On the other hand, if you wait until age 70, that's when you receive the largest benefit. So it's between age 62 and age 70. But again, it's a very personal decision and more we suggest is absolutely there's a whole bunch of online calculators, but work with somebody to help you figure out for your situation what's the right age for you to apply. And in terms of how you go about applying maybe mana, do you want to talk about physically? How do you apply for it? How do you receive it? How did you get that whole process going?
Speaker 2 (08:29):
Yeah, we'll be back after this important message.
Speaker 1 (08:32):
When we started the show, our goal was just to answer the questions that our community have. But manana, have you looked at the stats lately?
Speaker 2 (08:41):
Oh, absolutely Jane. We have people listening to us from over 20 countries and that is super cool. So exciting. Thank you dear listener. And if you want to be notified of our episodes as soon as they drop, please subscribe on the I am cafe.com. Thank you so much again. And now back to our regular episode. That's actually what you said was right on. Because these decisions and whether you want to apply for social security and at what age or if you're going to wait till you turn 70, that's a very personal decision.
Applying for Social Security
But once you've decided that the decision is made and you've consulted all your financial planners, et cetera, and you go there, the best way to apply is if you can afford to and have the means to come to the us, then that's the best way to apply is to be on the United States land and make a trip to the nearest social security office, get an appointment, which you can do again online and find out where your nearest office is, go there, get your paperwork and get it done.
Speaker 2 (10:02):
That I have been told is the best way to apply. Well, if you can't make it to the US and there could be many reasons why you can also apply for social security from overseas and this would start off by of course going to the ssa.gov website. You would schedule a video interview, you would answer all these questions, send in the paperwork that they're asking you to, and that's how you get started with the application. Depending on your situation and depending on what country you are in, depending on the number of credits you have and the quarters you've worked, this could take a while for the Social Security Administration to figure out what your benefits are, whether you qualify and because you are now living in another country, they have to make sure that you are the right person that these benefits are being paid to.
Speaker 2 (11:09):
So they have to make sure all of the due diligence is done before the benefits can be actually paid to you. So that brings us to the next question, which is where does the money now that you will get go to? So you can either deposit the money into a bank account in the US or you can deposit it into a bank account directly in the country where you are residing at the moment and make sure that that bank you're banking with will and can receive us dollar deposits. Now another thing that comes to my mind is even if you decide that it's just easier to put this money into your US bank account, then you have to make arrangements on how you're going to repatriate that money for your use to the country where you're living. So these are personal decisions of course, and also depends on the rules that the country has where you're living in on how you would repatriate this money and what all of the banking regulations are, et cetera.
Restricted Countries Where you Cannot Receive Social Security Benefits
Speaker 2 (12:26):
There are some restricted countries where you cannot receive social security benefits. The list is on the website again and these change from time to time at present when we are recording this is North Korea, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan and so on. So there are nine countries or so on this restricted list. Having said that though, there are exceptions to you being able to receive your social security benefits even if you live in one of these restricted countries and what those exceptions are, you would have to talk to this person who you are interviewing with when that happens. And from what Jean and I know for the people who retirees who live on the Eastern hemisphere, the Social Security office interviews are scheduled from the Philippines. So you have to keep in mind what the time zones are, the time differences. Sometimes you might be sitting up in the middle of the night waiting for that interview.
Speaker 2 (13:36):
So that happens. So that is how you apply. Another thing is, okay, so let's say you went through all of these steps and you got through yay. So now you are able to get the money. Now the social security benefits are going to be paid out as long as you are alive or you can prove that you are alive. And in order to do that, the Social Security Administration sends you an annual or a biannual questionnaire. So make absolutely sure that you are completing that questionnaire and sending it back. And in order to even receive that questionnaire, make sure that the Social Security Administration has your correct address on file. So guess what? Lost mail is not going to be an excuse. So make sure that you can receive this questionnaire, make sure you're completing it and sending it back to them because if they do not receive these questionnaires then your social security benefits will stop. And that's not a good thing for you if you're depending on that income. Right, Jane?
Speaker 1 (14:52):
Right. I was actually just going to ask do they send this form physically and I think you just answered it so we'll just move right into the next bit. So when you talked about the Philippines and India, I'm currently doing a lot of research on Canada in what I've seen on a lot of sites, which is kind of interesting since Canada is our neighbor is you did say it's a lot easier if you're able to come to the US to apply and what they've been saying on a lot of these forums, and I know we say we filter out the noises, look for very specific border towns and once you get there, don't bother making a call the 800 number because you're probably not going to get the right person, but look for a specific border town, go there and physically apply for the social security.
Where Does the Social Security Money Come From?
Speaker 1 (15:43):
So the next question is where is this social security money coming from? So as we all know everybody working in the US, you pay what's called FICA taxes and basically this is money that you pay to the government via payroll taxes. And we actually have a shorty episode where we talked all about the FICA taxes and we'll link to it so you can go back and get some of those details. The bottom line is employers pay half of it and you as the employee pay the other half 6.2% and the criteria is the maximum social security wage for 2024 is 168,600. So you are taxed on that at that particular rate. The thing I want to point out is when it comes to self-employment income, you pay the whole thing. So you're paying 12.4% and generally 92.35% of your net earnings from self-employment income is subject to self-employment tax.
Speaker 1 (16:50):
Now the reason why I am talking about this is because if you've been living abroad in your self-employed to be eligible to get your social security income, you need to make sure you've been paying your self-employment taxes even from abroad. And as we talk a lot about in the US world tax you regardless of where you are as long as president. So as a US citizen, obviously you are being taxed on your worldwide income. Now one thing I want to point out is obviously there's a whole idea of you may be double taxed and we have a whole episode on double taxation or avoidance of double taxation will link to it, but there's also the whole idea of what are called totalization agreements, which are treaties between the US and other countries. Not every country has one of this that ensures you're not paying social security into two countries. And so do you want to just briefly talk a little bit more about the totalization agreements as well as talk about how social security income is taxed?
How Social Security Income is Taxed
Speaker 2 (17:57):
Yes, yes, Jean, but before I jump into that, let me just clarify something about the maximum social security wage. So 4 20 24, this is $168,600 and this is adjusted for inflation every year. And by maximum social security wage, what we mean is that you could be earning more than this 168,600, but that 6.2% social security tax that you pay is capped for this amount. So that is something that has always been a hot issue with different political parties depending on who, but at this point that is the maximum social security age. So wage, sorry. So that's something I would like to clarify. And coming back to totalization agreements. So totalization agreements, like Jane said, our agreement between the US and the other country, I think there are about 25 or 26 countries, I'm not a hundred percent sure, but there aren't many with which the US has an agreement.
Speaker 2 (19:16):
And basically this affects how your social security benefits are taxed because if the country where you're living in has this agreement, then we are looking into various ways on how you would have paid into the benefits because now that affects how the credits are calculated and so on. So this entails more calculations for you. And then while we are talking about agreements, let's also quickly say that there are as tax treaties as well that the US has with various countries. And if you are in a country which has a tax treaty with the US, then you have to refer to that as well for taxation of your social security benefits. So this comes as a surprise to many people. They think that social security benefits are tax free income and unfortunately that's a myth that we need to bust today because social security income is kind of taxed on a sliding scale and that's usually the most clear way to explain this.
Speaker 2 (20:31):
So if you think about all of your income and you think about putting them into different buckets, so put your social security income into one bucket and your other passive income like interests and dividends and rental income and capital gains and all that into yet another bucket. And then you may still have self-employment income and salaries and wages that goes into the third bucket. Now to look at how this sliding scale works, you need to take your income from all of these three buckets and then depending on the exchange rate and what the tax bracket is that you fall into will determine how much of your social security benefits are going to get taxed. And depending on what your income is from these other sources, you will find out that maybe some of the social security benefits are now being taxed by the us. So this is something that you have to be prepared for and you have to have the ability to pay that tax if it comes to that.
Speaker 2 (21:47):
Now if you go back to our other episode about double taxation, we briefly touched upon foreign tax credits and all of that. That will still apply if the country your living in is going to tax your other income. That does not change. But when you're looking at this sliding scale for social security tax, some of your social security benefits might get taxed based on what your total income is from all sources up to a maximum of 85% of your social security is what the IRS can tax. So 15% of your social security is still tax free. And also of course look at the country where you are living in and find out whether they are going to tax your social security benefits. So rle back again to your tax treaty and totalization agreement and all that good stuff. So those are definitely a lot of points to remember. Of course, as always, and as Jane mentioned earlier, if you are a US citizen, you need to file a tax return wherever you live. And especially if are, if let's say even the only income you have is social security benefits, we would suggest please still file a US tax return because that keeps you up to date with the Social Security Administration as well because they see that a tax return is being filed every year declaring these benefits. So that's a lot, right Jane?
Covered Expatriate
Speaker 1 (23:33):
Okay, so it is, and I'm just going to continue making it more complex. Then after that we'll simplify things. So the other thing I do want to point out is if you are a covered expatriate, and we have a whole episode on this, these are people who will once US citizens or permanent resident holders or green card holders and you give up your citizenship. It means now as far as social security goals or the social security office will now refer to you as an NRA non-resident alien in this case. Your criteria is very, very different. And I think we'll do a whole episode on this, but I do want to point that out. And I think with that is there anything else you want to add, Mona, or we good on this?
Speaker 2 (24:24):
Well, what I would like, if at all, you take anything away from today's episode, dear listener, know that there's a lot of information available on the social security website and depending on how good you are with looking through all of that and sorting it out, it can get overwhelming. And for some people it could get very confusing. So if you are on the verge of applying for these benefits, then please sit down with a tax professional and a financial planner and find out what this entails for your financial planning and your tax purposes. Do a lot of pre-planning if you're going to be in this situation soon or thinking that you want to apply for your benefits and we know that there are experts who only deal with social security benefits and they can walk you through this who they can literally handhold you through this whole process and working with somebody like that would also be a great advantage. So on that note, we wrap up today's episode. As always, if you need more information or want to get in touch with us, please go to our website, the im cafe.com. There's a lot of information there. You can subscribe to our newsletters. Well, and as always, thanks for listening and tune in again to another great episode. That will be coming soon. Thank you. Bye.
Speaker 3 (26:06):
Thank you for listening to the International Money Cafe podcast. The content is for informational and educational purposes only and should not be used as a substitute for professional advice. Seek the advice of your qualified service provider with any questions you may have regarding your cross order finances and tax needs.