What is a Social Security Totalization Agreement?

The Social Security Totalization Agreement (“Agreement”) works by assigning social security coverage and, in turn, tax liability, to only one country, as determined by the rules of the particular agreement. Thus, these agreements allow you, in short, to avoid double taxation on the same earnings. The United States and South Korea executed a Totalization Agreement. Specific details of the Agreement may be found at: Social Security Totalization Agreement Between the U.S. & South Korea.

Rules vary substantially, between agreement to agreement, but all agreements share certain common features, such as assigning coverage so that workers pay social security taxes to one country or the other, not both. The general principle of all totalization agreements is the territoriality rule, which means that a worker pays taxes, only, under the social security system of the country in which he or she actually works.  

Taxes in Korea on Earnings.  Totalization Agreement.

How to Compute Periods of Coverage?

Under a Totalization Agreement, a person who divides his or her career between two countries can have periods of coverage earned in one country to be counted in the other country when establishing eligibility for benefits.

Periods of coverage are combined only for people who have a certain minimum amount of coverage but not enough to meet the ordinary requirements for benefits,

For example, under United States Law, a person needs at least six (6) quarters of coverage for benefits, but if you do not have the above six quarters of coverage, then the United States shall take into account the periods of coverage credited under Korean Law and which do not coincide with the periods of coverage already credited under United States Law. Under Korean Law, a person must have completed at least 18 months of coverage in order for the time in the United States to be counted in the calculation when determining whether you can receive benefits.  If more information is needed on the exact calculation method, we suggest consulting with a tax lawyer or an accountant. We have tax lawyers and accountants working with IPG.

When a person qualifies for a benefit in one country based on combined coverage under the respective agreement, then the amount of benefit payable is proportional only to those periods of coverage earned in each of the countries. Thus, it is possible for a person to receive a totalized benefit under the Agreement from one of the two countries or from both countries if he or she meets all the applicable requirements for the benefit. 

Computation under a Multilateral Agreement

Although many countries have multilateral totalization agreements, U.S. agreements are statutorily mandated to be bilateral only. Accordingly, if a person has earned six quarters of coverage and has additional periods of work in each of two countries with which the United States has concluded an agreement, only periods of coverage from one country or the other can be combined to entitle that worker to benefits.

However, in Korea, if a person does not have sufficient periods of coverage to satisfy the requirements for entitlement to benefits in either of the countries, then the period of coverage in a third country that has an agreement with both countries can also be combined. Again, the actual amount of benefits you receive will be proportionate to the periods of coverage in each country.

There are exceptions to the territoriality rule for detached worker, self-employed worker, and seafarers, airline crew, diplomats, and government employees. 

If you want to know more about retirement benefits or want to discuss other legal matters in South Korea, you may schedule a No-Charge Initial Consultation with a lawyer: Please Schedule a Call.

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