U.S.

Social Security Totalization Agreements

and the proposed U.S.-Danish Agreement
Frequently Asked Questions (FAQs)
1)

What is a totalization agreement? Why are these

agreements desirable?
Totalization agreements are a means of protecting the benefit rights of
workers who divide their working career between two or more countries.
They also help to eliminate situations in which workers or employers are
required to pay Social Security taxes to two countries on the same earnings.
In addition, totalization agreements remove legal obstacles that prevent a
person who has earned benefits in one country from receiving those benefits
while residing in the other country.

The United States currently has totalization agreements in force with 21

countries: Australia, Austria, Belgium, Canada, Chile, Finland, France,
Germany, Greece, Ireland, Italy, Japan, Korea (South), Luxembourg, the
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the
United Kingdom.

Totalization agreements allow for more equitable treatment of workers and

employers on a reciprocal basis. The prospect of double Social Security
taxation and serious gaps in a worker's Social Security record can act as
disincentives for employers to assign workers where they are needed most

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and for employees to accept such assignments. The Social Security
agreement with Denmark would remove these obstacles.

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2) What would be the benefits of the totalization agreement

with Denmark? Benefits for U.S. workers? Benefits for
Danish workers? Would survivors and dependents also be
affected by an agreement?

Totalization agreements are designed to coordinate Social Security taxation

and benefits for people who divide their careers between the United States
and another country.

Without an agreement, a worker from one country who works in the other
country may be required to pay Social Security taxes to both countries on the
same earnings. The employer may likewise have to pay to both countries.
Like earlier U.S. agreements, the agreements with Denmark would eliminate
this dual Social Security taxation by assigning a worker's Social Security
coverage to just one country.

Currently, U.S. citizens who are employed in Denmark for even very short
periods by U.S. companies must pay U.S. Social Security taxes as well as
Danish Social Security taxes, along with their employers. Under the
agreement, employees who are sent from the United States to work in
Denmark temporarily (5 years or less is considered temporary under the
proposed U.S.-Danish agreement) could be exempted from Danish Social
Security tax, and would pay only into the U.S. Social Security system.

Employees who are working in a country with which we have a totalization

agreement and in which they were hired or who have been assigned to a
country on a permanent basis (more than 5 years) would be covered only by
the country in which they are working.

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The proposed agreement with Denmark would also fill gaps in benefit
protection for workers who have divided their careers between the United
States and Denmark. Such workers may fail to qualify for Social Security
benefits from one or both countries because they have not worked long
enough to meet minimum eligibility requirements. An agreement would allow
each country to count a worker's Social Security credits in the other country
when determining benefit eligibility. Benefits would then be paid on a
prorated basis.

An agreement would not only allow each country to consider a worker's

combined U.S. and Danish coverage periods to establish entitlement to
retirement or disability benefits for the worker; it would also allow the
countries to determine benefit entitlement for a worker's dependents and
survivors based on the worker's combined coverage.

In addition, it would remove restrictions that either country imposes on benefit

payments to workers and their dependents and survivors when they live in the
other country. The United States, for example, currently will not pay
dependent and survivor benefits to Danish citizens who have been outside
the U.S. for more than 6 months unless they previously resided in the U.S. for
at least 5 years during which they were related to the worker. This
requirement would no longer apply once an agreement entered into force.

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3) How would agreements benefit employers in each country?

The proposed agreement would help employers avoid situations in which they
have to pay Social Security employment taxes to both the United States and
Denmark for their employees. This can happen now, for example, when a
U.S. company assigns a U.S. citizen or a U.S. resident alien to work
temporarily in Denmark. Under the agreement, if the employee were hired in
the United States and assigned only temporarily to Denmark, the employer
and employee would pay Social Security taxes only to the United States. On
the other hand, employees who were hired locally in Denmark or sent there
for a long-term or permanent assignment would be covered under the Danish
system only.

In addition, an agreement would indirectly help employers save substantial

amounts in income tax when they send employees from one country to the
other. It is a common practice for employers to reimburse employees for any
additional income or employment taxes they are required to pay as a result of
their foreign assignments. These tax reimbursements are frequently
considered to be taxable income in the host country. When the employer
reimburses the additional income tax that results, his tax bill can pyramid
significantly. By exempting employees on temporary assignments from host
country Social Security taxes, the agreement would also relieve their
employers from the host country income tax they would otherwise have to
pay.

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4) How much would this cost and how many people would be
affected by the proposed agreement?

Every Totalization agreement has a cost for each country because it results in
additional benefit payments based on combined credits and the elimination of
benefit payment restrictions for people residing in the other country, and also
because of the elimination of dual Social Security taxes.

The law requires that before an agreement can enter into force, the President
must send it to Congress for a 60-session-day review period together with a
report on the estimated cost of the agreement and the number of people it will
affect.

The estimated costs for the United States and Denmark are displayed in the
following table.

Estimated Additional Costs

to the U.S. and Danish Social Security Systems
under the Proposed Totalization Agreement
Fifth Year

Years 1 5
(cumulative)

(in Millions)

(in Millions)

Financial Effects for the U.S. Social Security system:

Increase in OASDI benefit payments

$ 2

Reduction in OASDHI tax contributions

TOTAL

$ 5

5
7

20.5
25.5

$ 7

$16.5

4
11

14
30.5

Financial Effects for the Social Security system of Denmark:

Increase in Danish OASDI benefit payments
Reduction in Danish OASDI tax contributions
TOTAL

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5) Does the Social Security Administration currently pay

benefits to anyone in Denmark?
Yes.

Section 202(t) of the Social Security Act authorizes the payment of benefits to
non-U.S. citizens if they are citizens of a country that has a Social Security
system that pays benefits to U.S. citizens anywhere in the world without
restriction. Since Denmark pays social security benefits to U.S. citizens
residing outside of Denmark, SSA already pays Social Security benefits to
Danish citizens anywhere in the world without restriction.

Section 202(t) also dictates that we pay non-citizen dependents and survivors
if the beneficiaries maintained at least 5 years of U.S. residency during the
period when they were related to the insured worker.

The combination of these statutory provisions has resulted in the following

numbers of individuals living in Denmark who are in current pay status:

In March 2007, SSA paid a total of $592,211.50 to 880 beneficiaries in Denmark.

There are also 29 beneficiaries in Denmark whose benefits have been
suspended. Of the total beneficiaries (those receiving benefits and those in
suspense status) 332 are U.S. citizens. Here is a summary of the payments
issued by benefit type:

556 payments to retired workers ($387,117)

17 payments to disabled workers ($15,249)

97 payments to spouses ($33,002)

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33 payments for children ($22,195)

177 payments to surviving spouses ($134,586)

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6) When would the agreements be effective?

The proposed agreement specifies when it will enter into force. This would be
3 months after the two sides have completed their respective legislative review
procedure. Barring any unforeseen delays, we believe the agreement could
become effective in late 2007.

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7)

Will the U.S. Congress and the Danish Parliament have to

approve the agreements? How long will that take?

Once the proposed agreement is signed, it will be transmitted to Congress for

review. An agreement must lie before Congress for 60 session days. How long
this would take can vary depending on the frequency of days that Congress is in
session. However, based on experience with other agreements, it takes about
5 months to complete the review. The Danish authorities will likewise submit the
agreement to the Danish Parliament for review. After the U.S. and Denmark
have completed their review requirements, we would then exchange diplomatic
notes saying we have completed our legal requirements and are prepared to
implement the agreement. The agreement would then become effective on the
first day of the third month following the month we exchange diplomatic notes.

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8)

The U.S. has had this kind of agreement in place with most
of Western Europe for years. Why has it taken so long to
get an agreement with Denmark?

For many years, Danish authorities indicated that legal and policy obstacles,
specifically the potential cost for Denmark, would prevent them from concluding a
totalization agreement with the United States. Now, however, the deepening ties
between the two countries clearly underscore the need for this agreement.

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9)

Does totalization affect Medicare eligibility?

Under U.S. law, a person generally becomes eligible for free Medicare
hospital insurance if the person is age 65 or older and is eligible for monthly
Social Security benefits or is under age 65 and has been entitled to disability
benefits for more than 24 months. An agreement with Denmark would not
include any provision affecting these requirements. Although a person could
become eligible for monthly Social Security benefits from the United States
based on combined U.S. and Danish coverage, eligibility for a benefit based
on combined coverage could not be used to qualify for Medicare hospital
insurance.

On the other hand, an agreement would apply to the portion of the U.S. Social
Security tax that finances Medicare hospital insurance. Thus, workers and
employers who are exempt from U.S. Social Security tax based on the
agreement can be exempt from the entire tax, including the Medicare portion.

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10) If the United States enters into a totalization agreement with

Denmark, what would the minimum work credit
requirements be to receive either a partial totalized
retirement benefit under an agreement or a full U.S.
retirement benefit?

To receive a partial totalized benefit under all of our agreements, an individual

must have accumulated at least 6 quarters of U.S. coverage and must have
at least 40 quarters (10 years) of cumulative coverage between the countries
with which we have an agreement.

For example, if an individual does not have the required 10 years coverage in
the U.S. Social Security system to qualify for retirement benefits, the
individuals combined work in both the United States and the other country
must yield 10 years of coverage. However, the amount payable would be a
"pro-rated benefit."

To receive a full social security retirement benefit, the individual must have at
least 40 quarters of U.S. coverage. If this is the case, a totalization
agreement would have no impact on the benefits paid to workers by SSA.

Additional Information

When a worker qualifies for benefits based on combined coverage, the

amount payable is a "prorated benefit," i.e., one that is proportional to the
number of credits earned in the United States.

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Totalization agreements can also be used to meet insured status

requirements for U.S. disability and survivors benefits, which in some cases
can be fewer than 40 quarters.

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11) What are the prospects for totalization agreements with

other countries?

SSA has sought to focus its totalization agreements program on agreements

that will benefit the greatest number of U.S. citizens and employers. Over the
past 30 years, the United States has negotiated agreements with nearly all
the countries of Western Europe, as well as Canada. Over that period,
however, countries in other parts of the world, including Latin America,
Eastern Europe and Asia, have become increasingly important trading
partners for the United States. With increases in U.S. business operations in
countries outside the North Atlantic region, we believe that totalization
agreements with these countries will become more desirable.

Agreements with Australia, Chile, Japan and South Korea have all been
implemented over the past several years.

A proposed new agreement with the Czech Republic may be ready for
signing later this year, and discussions on a new agreement with Poland have
already taken place.