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Social Security and Taxation in the USA

Even if you are still young (or feel young at heart), it’s essential to start thinking about your retirement provisions. Expat life can be expensive, as moving costs and similar expenses often add up. But this is no excuse to neglect building a “nest egg” for the days when you’d like to give up on working.

This section of our expat guide to the USA focuses on such financial matters: social security, pension plans, and taxation. The US has a well-established social security system that provides mainly for the elderly, disabled citizens, and families in need. When you start working in the US, a certain percentage of your gross income is directly withheld from your salary. Similarly, self-employed people need to pay a specific amount in social security tax. In this way, you earn social security credits; you’ll usually be eligible for benefits after about 10 years. However, social security in the US only provides a subsistence-level income. It prevents dire poverty among the aged, but it won’t allow you to retire in comfort. That’s what private pension schemes are for. We briefly explain the 401k, the most common type of company pension plan in the USA.

File Your Federal Income Tax Return

In addition to social security taxes, expats living and working in the USA obviously have to pay income tax. In the United States, income tax is due on several levels: to the federal government, to the individual US state, and sometimes to the local authorities, too. However, once you have filed your federal income tax return, most of the work is already done! While our guide can’t replace professional advice from a tax consultant, it does offer an overview of how US taxation works. We’ll answer such essential questions as where and how to register with the tax office, how to determine your filing status, and how to roughly calculate your tax burden.

Find Out More about International Tax Issues

Of course, compared to US tax-payers, expatriates need to pay attention to other aspects and additional details. Our article series on income tax in the USA also takes such differences into account. Not only do we explain the most common method of defining your fiscal residency, we also provide tax information specially tailored to so-called “non-resident aliens”, who are treated differently with regard to taxation in the US. However, all expats – regardless of their tax residence status – should read up on related issues, like bilateral tax treaties or the “departure permit”. Thus, you will not get into trouble with the IRS (Internal Revenue Service), aka the US tax authorities. Moreover, international tax agreements may offer various benefits to foreign nationals living in the US, such as favorable tax rates and ways of avoiding double taxation.

InterNations Expat Magazine