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

The United States social security program consists of benefits collected from taxes on employers, employees, and the self-employed, and distributions paid out to retired workers and their dependents and survivors. There are three aspects of the United States social security program. First, social security contributions are collected from current workers based on their current earnings. Second, social security benefits are calculated based on past contributions and paid to currently retired or disabled workers out of the funds contributed by current workers. And third, social security benefits received may be subject to income taxation, depending on the taxpayer’s status.

Other countries have similar systems, but many variations exist. The global worker – one who spends significant amounts of time working in more than one country – may be required to contribute to the social security programs of more than one country during the course of his career. But at retirement, the global worker must satisfy the benefits-eligibility requirements that might not taken into account amounts contributed to foreign countries.

International coordination is needed to ensure that a worker’s wages are not subject to double contributions, that the worker’s global history of contributions is not ignored when the worker retires, and that the worker’s benefits are not subject to double income taxation upon receipt.

In the United States, two types of international agreements are used to achieve coordination of these three aspects. The first is the tax treaty. And the second is the totalization agreement. A totalization agreement is an “executive agreement.” Totalization agreements are examined in Part III.