Earning US Social Security Credits while overseas

[PNGMK]

According to the Financial Advisor that my wife's International School uses there is only one way for US Citizens who are non-resident to earn (collect or gain) social security credits while overseas and that is via self-employment.

I quote: "It is an good option for accruing credits in the system to reach the 40 minimum for medicare but may not influence the actual amount of pension benefits if only the minimum is reported."

The primary reason for obtain 40 credits is Medicare and the base pension kick in. To obtain a single credit (in one year) you need a min. of USD$1299.41.

Now my question - how the F do you get self employment income when you're a fully employed teacher? Can rental or investment income count?

[Strong Eagle]

No. SS is only taxed on earned income. Only way I know that you could get it done is to be employed by a US registered company who pays you out of the USA.

[PNGMK]

No. SS is only taxed on earned income. Only way I know that you could get it done is to be employed by a US registered company who pays you out of the USA.

Yes I thought so.

There's an idea for a service actually (for expat Americans). An employment company that pays the S/S contribution.

You pay them $20,0000.....

They pay you a wage and deduct some costs.... and provide the various tax and SS forms and deduction.

Edit - reread the advisor's advice... wife needs a W-2 to get any SS contributions. That W-2 could be from 'self employment'.

[Strong Eagle]

Edit - reread the advisor's advice... wife needs a W-2 to get any SS contributions. That W-2 could be from 'self employment'.

No, that's not quite right. A W2 is issued by an employer. If you are self employed, one of the three following conditions exist and you file accordingly.

a) You are a sole proprietorship. You file annually on your 1040 with Schedule C for your business profit/loss. Quarterly, you must file your estimate of personal income/SS tax due for the year and write a check for that amount if greater than zero. Your quarterly filings and your Schedule C return dictate how many social security/medicare 'quarters' you get each year.

b) You are a partner in a partnership or LLC. The partnership files Form 1065 and Schedule K for each partner's share of profit/loss. Since all profits/losses are pass through, you must file quarterly estimated tax payments as for a).

c) You are the sole shareholder in a subchapter S corporation. In this case, you are employed by the corporation which must withhold tax from each paycheck and will file a W2 for you at the end of the year. Your alternative is to take no salary and instead report the profits directly on your form 1040, but if you do this and don't file estimated quarterly payments of tax due, you will be heavily penalized for failure to make tax payments due.

[PNGMK]

It doesn't sound easy to create 'self employed' income.

[RobSg]

Having taught in an International School in Singapore for 20+ years, I was concerned about social security also. Unfortunately, the only way I could contribute to social security, according to a representative from the American Embassy in the Philippines (the headquarters for social security in SE Asia) I talked to on the phone, was to be in an international school that was headquartered or received salaries from a home base in the States.

I proceeded to still keep my apartment in Singapore and accept teaching contracts in three other countries that actually contributed to US social security. That allowed me to obtain my necessary credits for Medicare, which I now have, and social security income, which I obtained when I turned 66.

One thing that surprised me was the reluctance for the social security administration to give me the predicted amount that was indicated on their website. They questioned me via phone why I did not contribute to social security for 27 years. I told them I was in Singapore and 9 other countries that did not contribute to social security. When I admitted I had a retirement plan (CPF, etc) in another country, they deducted about 30% from my intended social security income.

It's not really the social security that I'm thankful to have, but it is definitely Medicare.

Rob

[maneo]

When I admitted I had a retirement plan (CPF, etc) in another country, they deducted about 30% from my intended social security income.

This seems strange.
I thought that the amount was based on what you contributed.

What is the "justification" they gave for this 30% deduction?

[RobSg]

The Windfall Elimination Provision (WEP) deducts a certain amount of social security income if you were overseas and your company had it's own retirement program. You can look here to see the information: http://www.ssa.gov/pubs/EN-05-10045.pdf" onclick="window.open(this.href);return false;

The Social Security Administration is trying to conserve money. When they see a large gap in time where no money is being contributed to social security, they will ask if the company your were involved in had it's own retirement savings program. Then then use a formula to determine how much the social security income is reduced.

Rob

[maneo]

I thought that CPF was more like a 401k plan than a company's retirement plan.
Will take a closer look at the link.
Thanks.

[PNGMK]

Having taught in an International School in Singapore for 20+ years, I was concerned about social security also. Unfortunately, the only way I could contribute to social security, according to a representative from the American Embassy in the Philippines (the headquarters for social security in SE Asia) I talked to on the phone, was to be in an international school that was headquartered or received salaries from a home base in the States.

I proceeded to still keep my apartment in Singapore and accept teaching contracts in three other countries that actually contributed to US social security. That allowed me to obtain my necessary credits for Medicare, which I now have, and social security income, which I obtained when I turned 66.

One thing that surprised me was the reluctance for the social security administration to give me the predicted amount that was indicated on their website. They questioned me via phone why I did not contribute to social security for 27 years. I told them I was in Singapore and 9 other countries that did not contribute to social security. When I admitted I had a retirement plan (CPF, etc) in another country, they deducted about 30% from my intended social security income.

It's not really the social security that I'm thankful to have, but it is definitely Medicare.

Rob

Rob - thanks - it's this avenue "was to be in an international school that was headquartered or received salaries from a home base in the States." that I'm pursuing. The school my wife teaches at is owned by NICS - a US missionary group - and hence I feel that they should offer this exact option to US Citizens (to have their salary paid into a US bank account in the US and a W-2 etc).

[Strong Eagle]

The school my wife teaches at is owned by NICS - a US missionary group - and hence I feel that they should offer this exact option to US Citizens (to have their salary paid into a US bank account in the US and a W-2 etc).

They don't even need to pay it into a US bank account... they can pay it anywhere so long as it was issued from the US company. I know quite a few American expats who were paid from the home office in the US into a Singapore bank.

Maybe I ought to start a company like you mentioned!

[GSM8]

The school my wife teaches at is owned by NICS - a US missionary group - and hence I feel that they should offer this exact option to US Citizens (to have their salary paid into a US bank account in the US and a W-2 etc).

They don't even need to pay it into a US bank account... they can pay it anywhere so long as it was issued from the US company. I know quite a few American expats who were paid from the home office in the US into a Singapore bank.

Maybe I ought to start a company like you mentioned!

Here is a link to the type of employers that need to contribute to SS/Medicare taxes while an employee is working abroad. Most people who are receiving this "benefit" in Singapore would probably fall under category 4:
http://www.irs.gov/Individuals/Internat ... ing-Abroad" onclick="window.open(this.href);return false;

[GSM8]

I thought that CPF was more like a 401k plan than a company's retirement plan.
Will take a closer look at the link.
Thanks.

CPF is like a 401k plan for most nationalities except US - thanks to citizenship based taxation. Based on what I've read so far, I got the impression that if you contribute until the full CPF wage ceiling of S$85k (i.e. basic+AWS), in which case your contribution is S$85k*16% and your employer's is S$85k*20%, then any US person Singapore PR subject to CBT will owe full US tax on S$85k*36%=S$30.6k with no FEIE exclusion or deductions for Singapore taxes (because you pay none on that part). Or S$8,568 if you are in the 28% tax bracket, and S$10,098 if in the 33% tax bracket. This is in addition to normal US citizenship based taxes (after FEIE) that have to be paid to IRS.

http://www.irs.gov/pub/lanoa/pmta00173_6973.pdf" onclick="window.open(this.href);return false;

In addition, there is also reduction in benefits received for past SS tax contributions, due to Windfall Elimination Provision. Speaking of adding insult to injury

[zzm9980]

I thought that CPF was more like a 401k plan than a company's retirement plan.
Will take a closer look at the link.
Thanks.

CPF is like a 401k plan for most nationalities except US - thanks to citizenship based taxation. Based on what I've read so far, I got the impression that if you contribute until the full CPF wage ceiling of S$85k (i.e. basic+AWS), in which case your contribution is S$85k*16% and your employer's is S$85k*20%, then any US person Singapore PR subject to CBT will owe full US tax on S$85k*36%=S$30.6k with no FEIE exclusion or deductions for Singapore taxes (because you pay none on that part). Or S$8,568 if you are in the 28% tax bracket, and S$10,098 if in the 33% tax bracket. This is in addition to normal US citizenship based taxes (after FEIE) that have to be paid to IRS.

http://www.irs.gov/pub/lanoa/pmta00173_6973.pdf" onclick="window.open(this.href);return false;

In addition, there is also reduction in benefits received for past SS tax contributions, due to Windfall Elimination Provision. Speaking of adding insult to injury

You swapped employee vs employer contributions. Employee contributes 20%, employer 16.

[GSM8]

You swapped employee vs employer contributions. Employee contributes 20%, employer 16.

Thanks for correcting, zzm. I had indeed transposed the contribution rates. But that only seems to make things worse - while it sound's somewhat acceptable to pay IRS on employer contribution, one's own 20% contribution is something they need to pay towards CPF, as well as pay tax to IRS on, sort of akin to a tax upon a tax. You can't have your cake despite not eating it?