Question: I am a Canadian citizen and hold a TN-Visa, working in the US. Do I have to pay for social security or am I exempted from it?
Answer: The federal income and employment tax consequences for foreign citizens working in the United States depend on (a) whether the individual is classified as a “resident” or “nonresident alien” as defined under the U.S. tax laws; and (b) whether a tax treaty or agreement exists between the United States and the foreign citizen’s home country.
In general, an individual is considered a nonresident alien for tax purposes unless he or she falls under one of the following residency tests:
- Green card test : If the foreign citizen is a lawful permanent resident of the U.S. at any time during the current year; or
- Substantial presence test : If the foreign citizen is present in the United States for at least 31 days during the current year and at least 183 days during the current year and previous two years. For computing the 183 days, a formula is used that counts all the qualifying days in the current year, 1/3 of the qualifying days in the immediate preceding year, and 1/6 of the qualifying days in the second preceding year.
Several scenarios may classify a foreign citizen as a “nonresident alien” even though he or she meets the substantial presence test. For example, an individual may be treated as a nonresident alien if he or she has a closer connection to a foreign country than to the United States, maintains a tax home in the foreign country, and is in the United States for fewer than 183 days during the year. IRC § 7701(b)(3)(B). F-1, J-1, M-1, or Q-visa holders may be treated as nonresident aliens in certain situations. IRC § 7701(b)(5). Regular commuters from Canada or Mexico may also be treated as “nonresident aliens” even if they meet the substantial presence test. IRC §§ 7701(b).
Resident aliens are subject to the same federal income tax laws as citizens of the United States, i.e., they are subject to tax on all income earned in the United States and abroad. Resident aliens are subject to Social Security and Medicare taxes on wages (FICA taxes) and on self-employment income (SECA taxes) in the same manner as U.S. citizens. IRC §§ 1402(b) and 3121(b). Nonresident aliens are taxed on income from sources within the United States but generally not on income from foreign sources. Nonresident aliens are subject to FICA taxes on compensation from work within the United States under the rules applicable to U.S. citizens and resident aliens. IRC § 3121(b). For more information on the U.S. tax obligations of foreign citizens in general see IRS Publication 519: U.S. Tax Guide for Aliens.
The United States has entered into “totalization agreements” with several countries in order to provide individuals who work in two countries with the opportunity to qualify for social security benefits within one country and to avoid double taxation. Under these agreements, a foreign citizen who is sent by a foreign employer to work in the United States for less than five years will generally not be subject to FICA taxes upon proving that he or she is paying social security taxes to his or her home country. IRC §§ 1401(c), 3101(c), and 3111(c). Otherwise, the foreign citizen will pay FICA taxes and not be subject to taxes in his or her home country. The United States has entered into a totalization agreement with Canada. Read more about the Totalization Agreement with Canada.