Us Italy Totalization Agreement
A totalization agreement is an agreement between two countries that prevents double social security contributions for the same income. At this point, the United States has active totalization agreements with 24 countries. To find out which countries have reached an agreement with the United States, take a look at the IRS list of social security conventions. You will see that they are most often related to developed countries and not to emerging countries. International social security agreements, often referred to as “totalization agreements,” have two main objectives. First, they remove the double taxation of social security, the situation that occurs when a worker from one country works in another country and is required to pay social security taxes to the two countries with the same incomes. Second, the agreements help fill gaps in benefit protection for workers who have shared their careers between the United States and another country. Workers who are exempt from U.S. or foreign social security contributions under an agreement must document their exemption by obtaining a country coverage certificate that continues to cover it. For example, an American worker temporarily posted to the UK would need a SSA-issued coverage certificate to prove his exemption from UK social security contributions. Conversely, a UK-based employee working temporarily in the Us would need a certificate from the British authorities to prove the exemption from the US Social Security Tax. Under these agreements, double coverage and double dues (taxes) for the same work are abolished. Agreements generally guarantee that you only pay social security contributions to one country.
The agreement with Italy is a departure from other US agreements because it does not regulate the people cashed in. As in other agreements, the basic criterion of coverage is the territorial rule. However, the coverage of foreign workers is mainly based on the nationality of the worker. If an employed or self-employed U.S. citizen in Italy would be covered by U.S. Social Security without the agreement, he will remain covered by the U.S. program and exempt from Italian coverage and contributions. Double tax debt may also affect U.S. citizens and residents working for foreign subsidiaries of U.S. companies.
This is likely to be the case when a U.S. company has followed the common practice of entering into an agreement with the Treasury, pursuant to Section 3121 (l) of the Internal Income Code, to provide social security to U.S. citizens and residents employed by the subsidiary. In addition, U.S. citizens and residents who are independent outside the United States are often subject to double social security taxation, as they are covered by the U.S. program, even if they do not have a U.S. business. One of the general beliefs about the U.S. agreements is that they allow dual-coverage workers or their employers to choose the system to which they will contribute. That is not the case. The agreements also do not change the basic rules for covering the social security legislation of the participating countries, such as those that define covered income or work.
They simply free workers from coverage under the system of either country if, if not, their work falls into both regimes. Anyone who wants more information about the U.S. Social Security Totalization Program – including details of some existing agreements – should write: if you live abroad, you may have heard of agreements between the United States and your country, known as totalization agreements.