Collateral Consequences – Non-Tax
Why vested Social Security Retirement Benefits are not lost when a USC or LPR sheds their citizenship or immigration status. The Answer to: What happens to social security benefits to former USCs and LPRS including a “covered expatriate”?
The law of the Social Security Act is a bit obscure for persons who are not (i..e, no longer are) U.S. citizens. It is “obscure” because the law is silent as to former U.S. citizens. For basic background, see, Social Security Retirement Benefits – for former USCs and LPRs (Intersection of U.S. Tax and Social Security Law)
While USCs have broad, largely unfettered rights to social security (including when they reside exclusively outside the United States), former USCs and LPRs fall into a different category, specifically including the tax treatment of those benefits.
For the “Accidental American” who has spent virtually all of their lives outside the U.S. (and has never been employed by a U.S. employer), this discussion will largely be irrelevant to you as you will probably have no rights to Social Security Retirement Benefits.
However, for the former USC or LPR who falls into any of the following categories, and worked full-time for the requisite 40 quarters, they should have Social Security Retirement Benefits that are due and payable when they meet the age requirements:
- self-employed (and paid and filed self-employment tax returns – paying social security); or
- employed within the United States (even by a foreign employer); or
- employed outside the United States by a U.S. employer.
For a detailed discussion of how and when these federal employment taxes apply (including at what rates), please see “Comparative Overview of U.S. and Mexican Federal Employment Taxes,” CCH International Tax Journal, November–December 2009. Current Social Security Tax Rates, and the taxable base – contribution base (which adjusts annually) can be reviewed on the Social Security Website.
The 1996 and 2004 statutory amendments reflected above, do not modify the rights of former USCs or LPRs. They do affect the rights of individuals who were not USCs or LPRs; namely who did not have legal immigration status while working and living in the U.S.
For a detailed discussion of this part of the law, please see the Congressional Research Report of 2010 titled Social Security Benefits for Noncitizens.
The final conclusion about whether the Social Security Act restricts social security retirement benefits to “covered expatriates”, can NOT be expressly found in the statute or the regulations themselves. There is no affirmative answer in Title 42 or the regulations thereunder, regarding “covered expatriates.” It is silent on the issue and not expressly addressed.
Most importantly, throughout the Social Security Act and regulations thereunder, because of the “silence” of the statute, there are no restrictions expressly imposed on “covered expatriates” or any other former USCs or LPRs. This category of persons, “covered expatriates” is not somehow identified or segregated in the law for disparate treatment. The law provides generally that Social Security Retirement Benefits are available to non-citizens and those who no longer have LPR status; provided they meet the previous work and eligibility requirements. Shedding USC or LPR does not strip these individuals of these benefits.
While it is always hard (impossible) to “prove a negative”; our office has also received telephonic confirmation from technical support personnel of the Social Security Administration, that the above conclusion is a correct interpretation of the law.
Stay tuned to another post about how the U.S. imposes income and withholding taxes on Social Security benefits to “covered expatriates”; which is indeed different than for current USCs (and some LPRs) residing overseas.
Social Security Retirement Benefits – for former USCs and LPRs (Intersection of U.S. Tax and Social Security Law)
The basic law of social security, regarding retirement income (not survivors or dependent’s benefits) is set out below, and does not consider those countries with a Totalization Agreement (of which there are 26 countries, 25 which are currently in force):
- Generally, a worker must have 40 quarters (which is 10 years) of “covered employment” to be eligible for Social Security retirement benefits.
- U.S. citizens have virtually no limitations imposed upon them for receiving retirement benefits, provided they have met the 40 quarters of “covered employment”.
- Covered employment largely means the individual was
- self employed in the U.S. (and paid social security taxes) or
- was working for a U.S. employer (where the actual employer was/is a U.S. corporation or otherwise a U.S. tax resident) either in or outside the U.S.; and
- the employment must generally be full time.
- Historically, there were no limits on Social Security payments to non-U.S. citizens.
- Congress then passed a law in 1956 that required non-citizens to generally reside in the U.S. to receive Social Security payments.
- Subsequently, the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 added Section 202(y) to the Social Security Act. Section 202(y) of the act, which became effective for applications filed on or after December 1, 1996, states:
- Notwithstanding any other provision of law, no monthly benefit under [Title II of the Social Security Act] shall be payable to any alien in the United States for any month during which such alien is not lawfully present in the United States as determined by the Attorney General.
More details on social security retirement benefits regarding former USCs and former LPRs to come in a further post; specifically including a discussion of how the vested retirement benefits under the Social Security Act are not terminated upon a change of immigration status or loss of U.S. citizenship.
Renouncing USC or formally abandoning your LPR can have consequences that you may not have contemplated. For instance, many States in the United States will not issue or renew a driver’s license to a non-USC who has a certain immigration status.
Other States, such as Texas have extensive requirements, depending upon the immigration status of the former USC or LPR.
California laws restrict many non-citizens from having a driver’s license. California does accept a Canadian passport or birth certificate as a valid document and proof of eligibility. Also a valid Mexican border crossing card (aka “laser visa”) with a valid I-94 is acceptable in California. See, California DMV.
Almost every State has a different set of unique rules. See, for instance, New Hampshire, New York, Florida, Washington State, Illinois and Washington, D.C. Illinois, for instance, has a law passed in 2013 that allows a driver’s license to be issued to an “undocumented” temporary visitor.
Washington State currently has one of the most liberal set of rules for obtaining a license; including acceptance of “multiple documents issued by: Mexican government [&] Guatemalan government”
Of course, if you are living almost exclusively outside the U.S., a driver’s license from a State within the United States, will certainly not be necessary. However, some U.S. insurance companies will not provide certain insurance coverage for non-citizens without a U.S. driver’s license. Losing your U.S. driver’s license may be little more than an inconvenience.