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Totalization Agreement and Additional Child Tax Credits

Totalization agreements

US citizens and green card holders residing abroad are responsible for making contributions to the U.S. Social Security system on net business income. 

Self-employed taxpayers residing in a country that has a Social Security Totalization Agreement with the U.S. are exempt from mandatory contributions in the U.S.. To qualify for the exemption, they should be making contributions to the Social Security system in the resident country.

The consequences of taking the exemption

The purpose of Totalization Agreements is avoiding duplicate taxation, not the duplication of benefits. Credits and benefits contingent upon contributions do not occur in two countries.

Even if you elected not to exclude your foreign earned income in anticipation of a hefty Additional Child Tax Credit of $1,400 per qualifying child, you will not get the refund if you took the exemption from paying Self-Employment tax. This income is not counted as net earnings for calculation of ANY U.S. benefits.

Per Code of Federal Regulations § 404.1096, self-employment income is the amount of your net earnings from self-employment that is subject to social security tax and counted for social security benefit purposes

Years where you made Social contributions in a resident country are not counted for Social Security benefits purposes. You are not accumulating work credits in the U.S. Your Social Security account does not reflect your earnings. From the standpoint of U.S. Social Security, you did not have earned income for the year.

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