For FICA tax purposes, "wages" are defined in Sec. 3121(a) as all remuneration for employment. Sec. 3121(b) defines "employment" for purposes of FICA generally to include any service performed by an employee for an employer, irrespective of the citizenship or residence of either, within the United States, or any service performed outside the United States by a U.S. citizen or resident as an employee of an American employer. There are also specific rules (beyond this item's scope) related to services performed on or in connection with certain American vessels or American aircraft and any service performed under an agreement entered into under Section 233 of the Social Security Act, P.L. 74-271.
Without a specific exception, these broad definitions of wages and employment operate to extend U.S. Social Security to American citizens and U.S. resident aliens employed abroad by American employers without regard to the duration of an employee's foreign assignment and even if the employee has been hired abroad. Employers may be unaware that nonresident alien employees or foreign employees who have been sent to work within the United States for any length of time generally also are covered under the U.S. program. In addition, many American companies enter into agreements with the Treasury Department under Sec. 3121(l) to provide Social Security coverage for U.S. citizens and residents employed by their foreign affiliates.
These rules, in combination with the fact that most countries impose social taxes on persons performing services in their territory, often result in dual social tax liability. This occurs when a worker from one country works in another country and is required to pay social taxes to both countries on the same earnings.
The statute and regulations include several exceptions from FICA liability. One exception applies to certain wages paid during any period in which there is in effect an International Social Security agreement, often called a "totalization agreement." Sec. 3101(c) (for the employee portion of FICA) and Sec. 3111(c) (for the employer portion of FICA) provide exemptions for wages received by or paid to an individual during any period in which there is in effect an agreement that those wages are subject exclusively to the laws applicable to the social security system of the foreign country. The following 24 countries have entered into totalization agreements with the United States: Australia...