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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Manasa Nadig, EA (00:00.066)
What's good going?
Jane Mepham, CFP (00:02.634)
We're back with another episode of the International Money Cafe podcast. I'm currently working with a client who's leaving the US. And as part of the discussion, we're talking about what they should do with their accounts. But one of the biggest is the fact that they've worked in the US for, I think, 10 years or so. And so they're curious as to whether they'll be able to receive their social security when they move overseas.
And so what I'm thinking, Manasa, today, let's talk about what it means to receive social security, but specific to U .S. citizens abroad. Because if you're on a completely different, let's say, visa or you're not a citizen, let's just put it that way. You do have to jump through a few hopes to be able to get your money, but you do get the money. OK, so talk about.
citizens who are retiring abroad and how do they get their social security? When we say you're outside the U .S., now here's an interesting one. The Social Security Office defines it as being outside one of the 50 states of the U .S., including let's say the District of Columbia, Puerto Rico, the U .S. Virgin Islands, Guam, and I think the other one is North Mariana Islands for at
30 days in a row. Now make a note, this is very different time calculation than what we use when it comes to things like tax residency. So in today's episode, we'll talk about drawing on social security income. We'll go into eligibility criteria. How do you qualify to get these social security? We'll talk about what's commonly known as FRA. So full retirement age, how to apply.
how to receive it. And then of course, with Manasa being in the house, we'll talk about taxation of social security income. We'll also go into totalization agreements. And so Manasa, would you want to explain to us what the eligibility criteria is for this?
Manasa Nadig, EA (02:15.812)
Sure, Jane, absolutely. And to your point earlier, I was recently reading in the Financial Times as to how many people are really leaving the country, just like your client, and have these very great questions about their ability to get social security benefits, having worked in the US and now they have been abroad.
and or they are going abroad and what they can do so that they will not lose out on all these benefits that have accrued in their name. So to start off, the eligibility criteria, if you are kind of different, if you are a US citizen or if you are not, but today we are gonna focus on the citizens, like you said, and
most important one to start off with is that there is a 40 quarter or 40 credit rule which translates to approximately 10 years of work or four quarters per year. So if you want to be guaranteed social security benefits you have to pass the 10 year minimum. Let's break down what that means right you can earn
to four credits per year based on your total wages and or self -employment income. In 2024, you needed to earn $6 ,920 per quarter to earn all four credits. And this amount adjusts every year. And you can spread this out over the year or you can earn it all
a shorter period of time, but this is the amount. And remember, credits remain on your social security record even if you change jobs or you stop working. So that's the one that you start out with. And you will be able to log in. if you don't have a social security account on the website, you should be able to log in and create an account so you can keep
Manasa Nadig, EA (04:39.076)
of these credits that are going in there in your name under your social security number. If you have earned more than the 6 ,920 or in general, the benefits do not increase. The criteria does not change if you earn more money.
And remember, these credits that we are talking about are only for applying for retirement. There are different criteria for applying for disability benefits or survival benefits or spousal benefits. And if you live abroad and you're looking at applying from abroad, there's a very handy tool on the social security website. You can look for it. It's called
payment abroad screening tool. And basically it walks you through certain steps that you need to take for eligibility. So that kind of helps out. But I think, Jane, it'll be a good idea to sort of go more deeply into what is full retirement age or FRA, because that really helps people decide whether and when to apply for social security benefits.
Jane Mepham, CFP (06:03.658)
No, that's fantastic. So FRA, full retirement age. So at the moment, the current full retirement age is 67 years old for people attaining age 62 in 2024. I think we may not be too far from that, but that's okay. But then the age of Medicare eligibility remains at
That is if you were born in 1960 or later. And as you point out, there's actually a tool or there's a handy, um, and we'll put the link in the show notes where you can actually go to social security website and actually go ahead and apply. Now the question is, because you are able to apply before your retirement age, right? Should you do that or should you wait until later?
It is a very, very personal decision. And it's actually something I'm always looking at my account to see, you know, if I retire, if I start taking my money at 62 versus waiting until for retirement age, how much money I'm going to have in general, right? In general, because you can take it at 62, the longer you wait, the higher the amount you get. And when I say the higher the amount you get at the moment, if you apply, let's say at 62,
you could see a reduction of up to as much as 30%. But you'd receive the largest benefit if you retire at age 70. Basically, if you start taking the money at age 70. There are a lot of calculators online that will help you do this, or you can work with a financial advisor or somebody else to help you based on your current specific situation, when is the best time to collect or to apply and get the money. And so,
After talking all this, the next question is how? Walk me through the physical process of actually applying for social security from overseas.
Manasa Nadig, EA (08:14.244)
That is a question that you and I get a lot when we are talking to our clients and who are planning to do this. The first thing, of course, if you can afford to and or have the time and the means to make a trip to the US, that's the simplest one is to walk, go to the nearest social security office and get an appointment and start your application. And that should
the most straightforward, simplest way to go about it. But let's say you can't for some reason come to the US to do this, then applying for social security from overseas, you would have to go to the website, like Jane said earlier, start an online application. And once that application is submitted to the social security administration, then
They will guide you through a series of emails and they will schedule a video interview where you have to answer questions and then ask for additional paperwork if necessary. And then you send in all the paperwork as well as provide them with the bank information where your social security income will be deposited. So now speaking of banks, you have an option.
of getting your social security benefits deposited into a US bank, or if your country is one of the eligible countries, then you can have it directly deposited into a bank account in the country you're living in presently. But make sure that that bank in your resident country can receive US dollar deposits. Of course, this is a personal decision of where your money will go.
And also it may decide rather how easy it is to move money from the US bank to the bank in your resident country or back and forth depending on your life situation. So you may need to make this decision beforehand before you even start the application.
Manasa Nadig, EA (10:38.524)
or this might be something that you may want to bring up in the interview with the social security person. So from what I know so far, there are some of my clients who are in India and who have been applying for social security. And some of them are in the process of doing it. The country or the consulate where they get this video interview from is the Philippines.
and usually they are quite good at responding via email and that has not been a problem for them. There are some restricted countries where you cannot receive social security benefits and all of those countries are listed on the social security website. They change from time to time. Currently, some of them are,
at Azerbaijan, Belarus, Uzbekistan, et cetera. And still, even if you do live in one of these countries, there might be exceptions available that you can still receive the social security benefits. So I know that sounds kind of counterintuitive, but you may want to explore if those exceptions are available to you and see if you would still.
be able to apply and receive those benefits, even if you live in one of those restricted countries. So, I know that you had a case where you had somebody living in on a, right? Yeah, yeah, yeah. You want to tell us, yeah, listeners that.
Jane Mepham, CFP (12:21.508)
yeah! Yeah, yeah!
So I've been looking a lot into receiving social security when you're in Canada, right? And as you said, the process is you go to the nearest office. And so I've been looking at a whole bunch of websites and discussion groups and the prevailing thought process or where people seem to have a lot of success
get yourself a visitor's visa. I Canada and the US, it's pretty easy. Cross over, literally drive across the border, go to the social security office nearest the Canadian border, whatever part you cross over, and go talk to somebody in person. And from what I've been able to gather, these people know a lot about the process. So they're like, don't call.
Don't talk to the ones on the other side of the border, but cross the border and go talk to this force and they'll be able to direct you. So I thought that was kind of interesting. And so the next.
Manasa Nadig, EA (13:30.882)
Yeah, No, what I really wanted to quickly say though, that in your case, this particular example, your client had to get a visa because they were not a US citizen. Was that what happened?
Jane Mepham, CFP (13:44.77)
Yes, we're not a US citizen, but they also did say even US citizens living in Canada, this is still the easiest way for them to go through the process. Cause a lot of times you find when you call the social security office, it all depends on who you end up talking to on the other side. So if you talk to somebody who's new, who's never done one of these.
this seems to be the case. But if you go to somebody who's been doing this for a living by crossing the border, that seems to work. So yeah, I that was kind of cool. And so the question is, we've been talking about getting all this social security. So just to take us back a little bit, Social security, money or taxes actually comes
payroll taxes, right? So this is money you've been paying into the system all along. And from what we all know, it's usually something like 12 .4 % of your payroll tax. So the employer puts in half and you put in half. And you're taxed on this for 2024 up to 168, 600
We talked a lot about FICA taxes and what goes into it. I think what we'll probably do, actually, I think what we'll do is we'll link to that particular episode where we talked a lot about FICA taxes and we talked about social security taxes, just as a quick refresher or reminder of where this money is actually coming from. It's money you paid into the system. So don't be afraid to apply for it when you qualify. Now, if you're -employed,
your criteria is a little different. So it basically means you pay the whole 12 .4 % because you're paying the employer's portion and your portion. And generally up to, and you can correct me on this minus I think up to 92 % of your net earnings from self employment, okay, is subject to self employment tax. Now the thing that's so important is if you're living
Manasa Nadig, EA (15:54.03)
That's right.
Jane Mepham, CFP (16:03.562)
Let's say you've always lived abroad. We have a lot of people who are in that situation. You want to make sure you've been paying your self -employment taxes on your social, on your self -employment income. And this is where, you know, the whole idea of totalization agreements come in. These are treaties between the U .S. government and other countries, which basically ensures you're not paying social security tax.
into two different systems, the whole idea of double taxation. And Manasa, do you want to add anything on the totalization agreement? I know we talk a lot about this.
Manasa Nadig, EA (16:42.318)
yes, yes, yes. Especially when it comes to social security benefits and taxation. Totalization agreements are kind of like tax treaties, but they focus on social security and social security benefits and taxation, et cetera, especially when you're paying into it. let's take an example.
Germany, for example, they have a very robust social security system. Now, if you live in Germany and you have self -employment income, like Jane was talking about earlier, as a US citizen, you may still have been subject to self -employment taxes in the US. But now because you live in Germany, which has a totalization agreement with the US,
you can bank your social security taxes in Germany and you will not be double taxed on that self -employment income on your US tax return. So that kind of is a very brief explanation about totalization agreement. But these do affect how your social security benefits are taxed. And of course,
It also depends on which country you're currently living in. And you should also, in addition with the totalization agreement, look at the tax treaties that the US has with your resident country, because that will also affect how the benefits may be taxed in the country you're living in. So this kind of comes as a surprise to many people, because they
their social security benefits to be completely tax free. They say, this was tax that we had already paid on the income that we had received. And it kind of gets into, you get into these long discussions about what exactly these are. But let's not go down that rabbit hole at this time.
Manasa Nadig, EA (18:56.156)
Basically, if you listen to us or if you read Jane and my blogs, you know that as a US citizen, no matter where you live, you have to file a tax return because the US has CBT or citizenship -based taxation. So the social security benefits by themselves are kind of taxed on a sliding
And this is how I like to explain this to people who have questions. So there is your social security income bucket, and then there is the bucket from all your other sources of income, like interests and dividends and maybe other retirement benefits like pensions and 401ks or IRAs or pensions and other stuff that you have coming in from the country where you have been living and working maybe.
you know, and rental income and all of those other sources of income and maybe even salaries if you're continuing to work. So all of these kind of go into the other bucket. Now, when your tax bracket is being calculated, all of these are mixed together and then the calculations look at how much money you have made in total, what tax bracket you fall
And there is a very detailed worksheet that the IRS has, which calculates this tax on your Social Security benefits based on all your total income. Know that, though, when we're talking about tax -free, only up to a maximum of 85 % of your Social Security benefits will be taxable at any point.
So 15 % of it is always tax free, but 85 % of it is subject to this sliding scale, which may or may not apply to you, depending on how much income you have, remember in the other bucket. So hopefully that kind of covers the taxability of it, but in addition to US taxes, and like we talked about earlier, the tax treaties,
Manasa Nadig, EA (21:17.302)
The country where you're a resident may tax your benefits as well. And that is where this can get tricky, especially if this is a country with whom the US does not have a totalization agreement. So at that point, you have to maybe fall back on the tax treaty to look at whether there are any treaty benefits that you can avoid double taxation on.
That kind of always comes back to what we say about working with tax professionals who are in a better position to guide you when you have this situation right,
Jane Mepham, CFP (22:02.408)
Yeah, absolutely. And I think one of the things as you're talking through this, I thought is we probably want to link, you know, there was the episode that we did on avoiding double taxation. think we want to link to that episode in this as well, because that will also go into a lot more details on how some of these things play together. And the last thing I did want to point out is, you know, last week or the last episode, we talked about covered expatriates.
Manasa Nadig, EA (22:17.656)
a good
Jane Mepham, CFP (22:32.392)
These are US citizens or green card holders who've given up the US citizenship permanently or the green card or their permanent residency permanently. Now, when it comes to getting social security, they are treated same as all other NRAs, so non -resident aliens, I guess, you that's what the social security office uses. So if you are covered in
patriot, means you've left the US. Your criteria for applying and getting the money is going to be very, very different from a US citizen. It's similar to, like the people I mentioned at the beginning, if you're in the US on a work visa, you never got the green card, you still made the 40 quarters and you left. And so we'll also link to the covered expatriates episode, because that's going to give you a little more info on that. And so with that, think
pretty much covered what we had planned to talk about. Is there anything else you'd like to add to this, Manasa?
Manasa Nadig, EA (23:36.729)
No, I think this was great, Actually, there's one thing though, I'm sorry. I did mention working with a tax professional, but there are people who are experts in just social security benefits. you know, Jane and I are big advocates of pre -planning, especially when you have footprints on in two countries and you have a lot of other cross border issues. So if
planning, then it would definitely be a great advantage to you to look for an expert in social security benefits and check on what that would entail, you know, and then maybe take your tax advisor into this conversation and your financial advisor into this conversation and have a planning session where you can see what
would be taxable, how much income you will have, and what different things you may have to do on both sides of the border if that applies to you. So having said that, thank you for listening, dear listener. As always, if you have more questions or need more information, go to our website, theimcafe .com. Thanks for tuning in. Until next time, bye.
