Filing Form 8946 for a PTIN Application

Claiming an exemption from U.S. Social Security and Medicare taxes due to an international agreement involves specific procedures. These agreements, known as totalization agreements, are designed to prevent individuals from paying social security taxes to two countries on the same income. An individual who qualifies under one of these agreements must obtain a Certificate of Coverage from the foreign country’s social security agency to prove their exemption from U.S. taxes.

Determining Your Filing Requirement

International social security agreements, often called totalization agreements, are bilateral arrangements between the United States and other nations to coordinate social security coverage and tax obligations for individuals who have worked in both countries. The goal of these agreements is to relieve workers from dual social security taxation on the same earnings. Under these treaties, a worker is subject to the social security laws of only one country at a time.

A requirement to formally address this exemption arises when you are subject to the social security system of a foreign treaty country while working. For a U.S. citizen working abroad, this often occurs when the work is for a U.S. employer in a country that has an agreement with the United States, for a period expected to be five years or less. A resident of a treaty country working in the U.S. may be exempt from U.S. Social Security and Medicare taxes if they are covered by their home country’s system.

The trigger for claiming an exemption is obtaining a Certificate of Coverage from the social security agency of the foreign country. This document serves as proof that you are paying social security taxes to that foreign country and are therefore exempt from corresponding U.S. taxes. Once this certificate is secured, you must use it to document your exemption with your employer or on your U.S. income tax return if you are self-employed.

Information and Documentation Needed

The document required to claim an exemption is the Certificate of Coverage issued by a foreign social security agency. Before you can complete any U.S. tax forms, you must first apply for and receive this certificate. The application process for the certificate will require personal and employment details, including your full name, date of birth, citizenship, and any national insurance or social security identification number from that foreign country. You will also need to provide your employer’s name and address, and the start and end dates of your employment.

Once you have the Certificate of Coverage, it contains the information needed to substantiate your exemption. The certificate will state your name, the name of your employer, the period of work it covers, and a statement confirming your coverage under that country’s social security system. This document is the evidence accepted by the IRS to prove your exemption under a totalization agreement.

For employees, you provide a copy of the Certificate of Coverage directly to your U.S. employer. The employer then uses this document to cease withholding Social Security and Medicare (FICA) taxes from your pay. For self-employed individuals, the certificate is used to substantiate the exemption on your U.S. income tax return.

Filing with Your Tax Return

The method for filing the exemption depends on whether you are an employee or self-employed. If you are an employee of a U.S. company, the process occurs before your tax return is filed. You must provide a copy of the Certificate of Coverage to your employer, who is then authorized to stop withholding FICA taxes for the period specified on the certificate. Your Form W-2 for that year should reflect zero wages in boxes 3 and 5, and zero tax in boxes 4 and 6.

When you file your Form 1040, the information from this W-2 will carry over, and no further action is needed to claim the exemption. For self-employed individuals whose income is exempt, you should not file Schedule SE (Form 1040), Self-Employment Tax. Instead, you must attach a copy of your Certificate of Coverage to your Form 1040. On Schedule 2 (Form 1040), you should write “Exempt, see attached statement” on the line for self-employment tax. It is important to retain a copy of the Certificate of Coverage with your tax records as proof of your right to the exemption for that tax year.