Table of Contents
Social Security Agreement between Australia and the United States
In 2001, Australia and the United States entered into an agreement, commonly called a Totalisation Agreement, for the purpose of avoiding double taxation of income with respect to social security taxes.
The social security benefits covered by the Agreement are as follows:
- Age Pension
- Disability Support Pension for the severely disabled
- pensions payable to widowed persons (Parenting Payment (single) and Bereavement Allowance)
- Carer Payment (to partners of people that receive Age Pension or Disability Support Pension)
- retirement benefits
- disability benefits
- survivor benefits
Eliminating Dual Coverage for Self Employment
In general, self employed US citizens or Green Card holders are responsible for paying self-employment tax regardless of where they live, including outside the USA. US self-employment tax rate is about 15.3% of net income from self-employed work. A part of this (12.4%) will be allotted for social security, which provides benefits for senior citizens, disaster victims and the differently-abled. The rest of the tax (2.9%) will be allocated for Medicare or hospital insurance.
The totalisation Agreement between Australia and the US can alleviate the need to pay self-employment tax.
Under U.S. law, self-employed workers are covered by U.S. Social Security if they are U.S. citizens or U.S. resident aliens. The agreement does not have any effect on the coverage of self-employed U.S. residents—they remain covered by U.S. Social Security. Since self-employment is not covered under Australia’s SG program, self-employed U.S. residents (including Australian citizens) do not need any documentation to show that they are exempt from SG contributions.
The agreement exempts self-employed U.S. citizens who reside in Australia from U.S. Social Security coverage. As a result, if you are a self-employed U.S. citizen and reside in Australia, you do not have to pay U.S. Social Security contributions on your self-employment income. To document the exemption from the payment of U.S. Social Security self-employment contributions, you must get a letter of exemption from the U.S. Social Security Administration by writing to the address in “U.S. certificates section.”
You should attach a photocopy of the exemption letter to the Schedule SE you file with your U.S. income tax return each year as proof of the U.S. exemption.