Social Security Considerations for US Citizen Expatriates
21 April 2009
What is the impact on a U.S. citizen's social security retirement benefits of working and living in Thailand?
The answer depends on many factors, including whether the citizen is eligible for benefits, how long he has worked, how much income (for social security purposes) he has earned each year he has worked, whether the worker has already retired and is receiving retirement benefits and the age of the citizen when he retired. For purposes of this article, unless otherwise specified, income means income that is subject to social security tax.
Eligibility for and Amount of Retirement Benefits
There are two important numbers to be aware of: 40 and 35.
40 is the number of credits each worker must earn to become eligible to receive social security retirement benefits. A worker receives a credit by earning a specified minimum amount of income in a year. A worker can earn up to a maximum of 4 credits per year, so 40 credits can be earned in a minimum of 10 years. For 2009, one credit is earned for each $1,090 of income, and four credits are earned with an income of $4,360.
35 is an important number because the amount of social security retirement benefits a retiree receives is determined by averaging the highest 35 years of the retiree's adjusted income. A worker's income in each year (up to the maximum income subject to social security taxes in that year) is first adjusted to take into account annual changes in average wages. Then the highest 35 years of the retiree's adjusted income are used to determine his monthly average adjusted income. The monthly average adjusted income is in turn used to calculate his “primary insurance amount”, which is the monthly social security retirement benefit the retiree receives if he retires at full retirement age, subject to adjustment for inflation.
For workers who work fewer than 35 years, years of zero income are included in the average, so if a worker has worked 10 years, then he will have 25 years of zero income included in his average. The effect of having one or more years of zero income included in the average may be less significant than one might expect, because the primary insurance amount will be a higher percentage of monthly average adjusted income if monthly average adjusted income is low, and conversely, the primary insurance amount will be a smaller percentage of the monthly average adjusted income if monthly average adjusted income is high.
For example, for a worker born in 1947, the primary insurance amount is determined by adding the following:
- 90% of the average indexed monthly earnings up to $744
- 32% of the average indexed monthly earnings above $744 up to $4,483 and
- 15% of the average indexed monthly earnings above $4,483.
The U.S. Social Security Administration provides resources for estimating social security retirement benefits.
Thailand is not party to a social security (totalization) agreement with the United States, so a worker will not get any social security retirement credit for working in Thailand unless social security taxes are paid to the U.S.
Generally, U.S. social security and Medicare taxes are not payable for wages earned for services performed as an employee outside the United States, and voluntary contributions are not permitted.
However, there are some exceptions:
- Work performed in or in connection with an American vessel or aircraft, where the employment contract was entered into in the U.S. and the vessel or aircraft is at a U.S. port during the worker's employment.
- Work performed in a country with a social security (totalization) agreement with the U.S. (Thailand is not a party to such an agreement).
- Work for an American employer, which includes any of the following: the U.S. government or any of its instrumentalities, an individual who is a resident of the United States, a partnership of which at least two-thirds of the partners are U.S. residents, a trust of which all the trustees are U.S. residents or a corporation organized under the laws of the United States, any U.S. state, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam or American Samoa and, as of August 1, 2008, any foreign person with an employee who is performing services in connection with a contract between the U.S. government (or any instrumentality thereof) and a member of a domestically controlled group of entities which includes such foreign person.
- Work for a foreign affiliate of an American employer under a voluntary agreement between the American employer and the U.S. Treasury Department. A foreign affiliate of an American employer is any foreign entity in which the American employer has at least a 10% interest, directly or through one or more intermediary entities. For a corporation, the 10% interest must be in voting stock. For any other entity, the 10% interest must be in profits.