Understanding the Social Security Taxes and Tax Totalization Plans
HomeWork Solutions has many years of experience providing payroll and tax services to employer’s with domestics working in the US on a G-5 Visa. These employers and their G-5 domestics often have questions about Social Security Taxes for G-5 domestics. The following are general guidelines that apply to the vast majority of G-5 domestics. These apply equally to NATO-7 domestics. The A-3 domestic servant is exempt from Social Security and Medicare taxes IF the domestic is paid directly by the foreign government ONLY.
What are Social Security Taxes?
A G-5 domestic who is working in the United States is subject to Social Security taxes on the wages they are paid. This applies to both G-5 resident and non-resident aliens. The sponsoring G-4 employer is also responsible for a contribution to the Social Security Taxes. The sponsoring G-4 employer is wholly responsible for the collection and remittance of all the Social Security taxes (Social Security and Medicare, or collectively FICA taxes).
The Social Security Taxes have two components – the employee funded share and the employer funded share. Each party pays in 7.65% of wages (6.2% Social Security and 1.45% Medicare). The employer (the G-4) must either collect via payroll deductions the employee’s share, or agree to pay the employee’s share on his/her behalf. The total tax (15.3% of gross wages) is paid to the Internal Revenue Service by the employer using I.R.S. Form 1040 Schedule H.
Will the G-5 domestic be entitled to Social Security retirement benefits?
The G-5 domestic will not be entitled to Social Security retirement benefits unless their status changes. The G-5 who obtains an immigrant visa (Green Card) or becomes a U.S. citizen will be able to use the Social Security taxes they have already paid to the U.S. government (while a G-5 status) to qualify for eventual retirement benefits.
A G-5 domestic who is a citizen of a country with a Social Security totalization agreement with the United States (a form of tax treaty) may request that the taxes they paid while working in the United States be credited to their similar retirement plan in their home country.
Countries who currently have Social Security totalization agreements with the United States include:
The purpose of a totalization agreement is to ensure that an employee is subject to social security taxes only in the country where s/he works. Totalization agreements allow such individuals to elect a “totalized” benefit in their home country. For example, each year paid into the social security system of the United States counts as a year towards the home country’s eligibility. The U. S. Social Security Administration has additional information here.
Sponsoring organizations from time to time make changes to the employment rules imposed on the staff member employing the G-5 domestic. These changes generally impose additional documentation and time/payroll tracking procedures designed to protect the sponsoring organization from charges of sponsoring ‘domestic enslavement’ should abuses occur. HomeWork Solutions strongly encourages the sponsoring staff member to request and become familiar with the regulations imposed by their sponsoring organization.