The Totalization Agreement with Australia became effective on October 1, 2002.

If both the U.S. and Australian social security systems cover a worker’s employment or self-employment, the Agreement provides that beginning October 1, 2002, only one country’s system will cover the worker’s employment or self-employment. The Agreement does not affect a worker's coverage prior to that date. If a worker had dually-covered earnings before October 1, 2002, that were dually covered, those earnings remain subject to social security taxation in both countries.

For the United States, the Agreement applies to the Old-age, Survivors and Disability Insurance (OASDI) program and the corresponding tax laws (Federal Insurance Contributions Act (FICA) taxes for employment and Self-Employment Contributions Act (SECA) taxes for self-employment). The Agreement does not apply to Medicare provisions. If an employee is exempt from U.S. Social Security coverage under this Agreement, neither the employee's nor the employer's share of the FICA tax is due as long as the exemption is effective. A self-employed person is exempt from paying SECA taxes (equivalent to the employee's and the employer's shares of the FICA tax) for any period the exemption is effective.

The U.S. laws to which the Agreement applies are Title II of the Social Security Act except sections 226 (Medicare benefits), 226A (Medicare coverage for certain persons suffering from renal disease) and 228 (special age-72 payments-Prouty benefits). Hospital insurance under Medicare has been excluded. It is understood, though not specified, that persons to whom the Agreement applies who qualify independently for Medicare hospital insurance benefits would be entitled to receive such benefits.

For Australia, the Agreement applies to the contributions that employers must make to employees' private retirement accounts under the Superannuation Guarantee (SG) program. Employers do not have to make contributions to SG for workers who are exempt from Australian coverage as a result of the Agreement.

Australia's basic social security program that covers its age pension, disability pension, widow’s pension, and carer payments is separate from the SG program and is funded through general revenues and not from earmarked payroll taxes. Therefore, the provisions of the Agreement that eliminate dual social security coverage and taxation do not apply to the Australian basic social security program. However, these benefit categories might be applicable to people who have divided their careers between Australia and the United States.

RS 02002.015 - RS 02002.025, Exceptions to the Territoriality Rule for Employment

A detached worker is an employee who is sent by his or her employer in one country to work temporarily in the other country for the same employer or an affiliate of that employer.

Under the Agreement, a detached worker remains subject only to the social security laws of the country from which the employer transferred the worker. However, the worker must meet all of the following conditions:

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  The employer and worker expect the period of employment in the host country to last no more than five years. The five-year period begins with the date the employment in the host country commences (or October 1, 2002, the effective date of the Agreement, if later);

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  The employment relationship existed before the employer transferred the worker from the home country;

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  If an American employer sends an employee to that employer’s affiliate in Australia, there must be an agreement in effect between the American employer and the Internal Revenue Service under section 3121(l) of the Internal Revenue Code to provide Social Security coverage for U.S. nationals and lawful permanent residents (green card holders) employed by the affiliate. In such cases, the employer must still obtain a certificate of coverage to establish the exemption from Australian social security taxes.

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  If an Australian employer sends an employee to become an employee of a related company in the United States, the related company must be a member of the same wholly or majority owned group as the Australian employer under the applicable provisions of Australian law.

  NOTE: Under the provisions of the Agreement, the detached worker rule may apply even if the employer does not send the employee directly from one country to the other, but first assigns him or her to work in a third country.

Refer inquirers who want information about related companies under Australian law to the Australian Taxation Office web site at www.ato.gov.au.

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  RS 01901.070 Agreement under Section 3121(l) of the Internal Revenue Code

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  RS 01901.050 Employment Outside The United States for An American Employer

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  RS 02002.045 Certificates of Coverage and Letters of Exemption under the U.S.-Australian Agreement

A person employed on a ship or aircraft who would otherwise have coverage under the laws of both the United States (U.S.) and Australia will have coverage only in the country where he or she resides. A special exception will be necessary if a crew member who would otherwise have dual coverage does not reside in either country.

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  RS 01901.030 Employment Within the United States

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  RS 01901.050 Employment Outside the United States for an American Employer

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  RS 01901.070 Coverage Outside the United States for a Foreign Affiliate or Subsidiary of an American Employer

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  RS 01901.150 Employment on American Vessels and American Aircraft

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  RS 01901.170 Employment on Foreign Vessels or Foreign Aircraft

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  RS 01901.450 Coverage under International Totalization Agreements

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  RS 02002.035 Special Exceptions to the Coverage Rules under the Australian Agreement

The Vienna Conventions on Diplomatic and Consular Relations ("Conventions") provide that, in general, nationals of a country who work abroad in the diplomatic or consular services of their home country are exempt from social security coverage and contributions under the host country's laws, unless that worker specifically waives his or her exemption.

The Conventions, to which both the United States and Australia are parties, apply to:

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  Members of the staff of a diplomatic or consular mission, including the diplomatic, consular, administrative, and technical staffs;

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  Dependents of members of those staffs;

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  The domestic service staffs of those missions; and

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  The private servants employed by members of such missions (under certain conditions).

RS 01802.050 Coverage Status — Employees of Foreign Governments and International Organizations — Policy Principle

The Agreement provides the following rules for self-employment:

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  U.S. and Australian nationals residing in the United States and working in self-employment are subject only to U.S. Social Security coverage and taxation;

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  U.S. nationals residing in Australia and working in self-employment are exempt from U.S. Social Security coverage and taxation; and

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  Australian nationals residing in Australia and working in self-employment are not covered under either country's system.

Under U.S. law, self-employed U.S. citizens or U.S. lawful permanent residents (green card holders) pay taxes to and have coverage under the U.S. Social Security program on their worldwide income. Australia's Superannuation Guarantee (SG) legislation does not cover self-employed workers.

The effects of the Agreement on the coverage of self-employed workers are as follows:

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  The Agreement does not have any effect on the coverage of self-employed U.S. nationals or lawful permanent residents residing in the United States;

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  The Agreement exempts U.S. national residing in Australia and working in self-employment from their ordinary obligations to pay into the U.S. Social Security system;

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  The Agreement provides U.S. Social Security coverage for Australian nationals residing in the United States and working in self-employment; and

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  The Agreement does not have any effect on Australian nationals residing in Australia and engaged in self-employment activity (they continue to have no SG coverage).

As a result, self-employed workers, including U.S. nationals, who are subject only to Australian laws under the Agreement, are not required to contribute to either country.

Generally, self-employment work activity under U.S. Social Security law is considered self-employment work activity under Australian law. In certain cases, however, a person may be engaged in an activity that one country considers self-employment and the other country considers employment. For purposes of applying the Agreement, any such activity will be subject to the rules for self-employment. As a result, a person who is a resident of the United States will be subject only to U.S. law and a resident of Australia will be subject only to Australian law.

A self-employed U.S. citizen who is subject only to Australian law under the Agreement and is exempt from paying Self-Employment Contributions Act (SECA) tax must still file a U.S. tax return every year. To show that the self-employment earnings are exempt from U.S. Social Security self-employment tax, the individual must do the following:

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  Indicate on Schedule SE that the earnings are exempt under the Agreement; and

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  Request a letter of exemption from the U.S. Social Security Administration; and

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  Attach a photocopy of the letter of exemption to the U.S. tax return every year (see RS 02002.045) as proof of the exemption.

RS 02002.010 through RS 02002.030 describe the terms of the Agreement that eliminate dual coverage and include the majority of situations where the United States (U.S.) and Australia would both cover and tax a worker in the absence of an Agreement. However, sometimes the application of the normal Agreement rules would yield anomalous or inequitable results. For this reason, the Agreement includes a provision that permits the authorities in both countries to grant exceptions to the normal coverage rules of the Agreement if both sides agree.

The intent of the exception provision is not to provide workers or employers with the freedom to elect coverage in conflict with normal Agreement rules. The purpose of the special exception provision is to allow a worker to continue coverage in the country where he or she normally works and has coverage, in order to ensure that he or she will meet eligibility requirements for retirement or disability benefits.

An employee and his or her employer or a self-employed person may request a special exception to the normal coverage rules of the Agreement. Both countries must agree to the special exception and agree on the country of coverage. If either country does not agree with a proposed exception, the applicable coverage rule of the Agreement determines the worker’s coverage.

An employee and his or her employer or a self-employed person who wish(es) to apply for a special exception may write to the addresses below in the country where the worker wishes to remain covered. The letter should:

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  Give all the information necessary to issue a certificate of coverage under the U.S. - Australian Agreement; and

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  Explain the reason for the special exception request.

Persons wishing to request an exception granting U.S. coverage should write to the following address:

Persons wishing to request an exception granting Australian coverage should write to the address below:

Upon receipt of a request for a special exception, the agency that receives the request will consider it in collaboration with the other country's agency. If both agencies approve the request for a special exception, the agency that receives the request will issue a certificate of coverage. The certificate of coverage will serve as proof of exemption from coverage and taxes in the other country. See RS 02002.045 for more information about certificates of coverage under the U.S. - Australian Agreement.

The U.S. - Australian Agreement requires each country to issue certificate of coverage forms for workers who, without the Agreement, would have to pay social security taxes to both countries on the same earnings. The certificate serves as proof that the worker named on the certificate is:

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  Subject to the social security taxation and coverage laws of the country issuing the certificate; and

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  Exempt from social security coverage and contributions on the same earnings in the other country.

Australia will not issue a certificate of coverage in situations involving the general rule for employment (RS 02002.010), the crews of ships and aircraft rule (RS 02002.020) or the self-employment rule (RS 02002.030). In those situations, the employer, employee or self-employed U.S. citizen residing in Australia must request a letter of exemption from the U.S. A letter of exemption issued by the Social Security Administration (SSA) certifies that the worker (and employer, if employed) named on the letter is:

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  Subject only to Australian taxation and coverage laws under the agreement, regardless of whether or not contributions must be made under Australian law; and

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  Exempt from U.S. Social Security and Medicare coverage and contributions on the same earnings in Australia.

Advise inquirers that when writing to obtain a certificate of coverage or letter of exemption, they should provide the following information:

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  Full name; and

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  Social Security number (U.S. number for U.S. certificate or letter and Australian number for Australian certificate); and

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  Country of citizenship; and

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  Date and place of birth; and

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  Country of permanent residence; and

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  Name and address of employer in both countries (if self-employed, address of trade or business in both countries); and

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  Date and place of hire by sending company, if employed; and

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  Beginning date and ending date (if known) of employment or self-employment in the other country.
  

  NOTE: If the worker will be an employee of an Australian affiliate of an American employer, the request must indicate whether the American employer has entered into an agreement with the Internal Revenue Service under Section 3121(l) of the Internal Revenue Code and, if so, the effective date of such an agreement.

The responsible party will take the following actions when processing requests for certificates of coverages.

1. 1. 

   The employee, employer or self-employed person writes to the appropriate authority requesting a certificate.
   

   NOTE: If an employee requests the certificate of coverage from the United States, OEIO will need to contact the employer to confirm the accuracy of the information provided.

2. 2. 

   The agency issues the certificate, if appropriate.

3. 3. 

   The issuing agency sends the original and one copy to the requester.
   

   NOTE: The employee, employer, or self-employed person must present the certificate to the tax authorities in the other country upon request.

1. 1. 

   The employee, employer or self-employed person writes to the SSA requesting a letter.
   

   NOTE: If an employee requests the letter of exemption from the United States, OEIO will need to contact the employer to confirm the accuracy of the information provided.

2. 2. 

   The Social Security Administration issues the letter, if appropriate.

3. 3. 

   The employee, employer, employee, or self-employed person presents the letter to the tax authorities in the other country upon request.