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consequences of not paying FICA, it $71,000 if she lives to that age, an an- is an “administrative error” that may be
may be worthwhile to quantify the po- nuity with a present value of more than corrected by an employer after the close
tential impact. $44,000 at age 67 (using a discount rate of the calendar year during which it
of 5%). This is not a bad return on her was paid.
Benefits for temporary US investment of $26,505 (the maximum
residents OASDI tax for years 2020–2022). Background
A common concern of workers tempo- The IRS memorandum considers the
rarily present in the United States is that Many variables, not all scenario of a U.S. company sending an
the FICA tax they pay will result in no consequential employee who is a U.S. citizen on an
future benefit to them. For many work- The answer to the question “What assignment to a foreign (host) country.
ers, this is valid, given the 40-credit/10- impact will working abroad have on my Because there are both personal and
year contribution threshold noted above. U.S. Social Security retirement benefit?” economic costs to an employee who
However, a second purpose of bilateral is “It depends.” Among the consider- relocates to a host country, companies
totalization agreements is to provide for ations are how many years the person often provide these “assignees” with
social security benefits at a much lower has already paid FICA tax; how many assignment allowances (such as cost-of-
threshold of participation. In the case years after the work abroad he or she ex- living adjustments, housing, and tuition
of the United States, if a person has just pects to pay FICA; and, particularly for for dependents) to mitigate the impact
six Social Security coverage credits but an inbound foreign worker, whether the of an assignment on the assignee’s
has at least 10 years of participation in other country shares a totalization agree- pocketbook. However, these assignment
the United States combined with that ment with the United States. Often, allowances inflate an assignee’s taxable
in a country that shares a totalization the answer to that same “What impact earnings, and, in turn, increase the as-
agreement with the United States, then …” question is — “Not as much as you signee’s personal tax liability. Addition-
the person will qualify for a U.S. retire- might think.” ally, the assignee may be subject to tax
ment benefit. From Robert Rothery, CPA, Portland, in both the United States and the host
Ore. country on this inflated income. Given
Example 5: M works in the United the potential negative tax consequences
States for three years, 2020–2022, for an assignee, many employers use
accumulating 12 coverage credits. Foreign Income & Taxpayers a tax reimbursement policy known as
Assume that M was born in 1965 tax equalization that attempts to ap-
and paid FICA tax on the maximum No employer refund for proximate an assignee’s personal out-of-
amount of wages subject to FICA tax payments made on pocket tax cost as if the assignee had not
in each year 2020–2022. She has employee’s behalf gone on assignment.
no other work history in the United In a recent Chief Counsel Advice mem- Tax equalization: Typical tax
States over the course of her career orandum (CCA 202202010), the IRS equalization policies divide an as-
but worked in Spain and paid Spain’s determined that an employer funding an signee’s employment compensation
social security tax over those years. international assignee’s federal income into two categories. The first category,
Because she has more than six U.S. tax obligations under a tax equalization “assignment-related” compensation,
coverage credits and more than policy may not seek a refund of excess includes assignment-related allowances.
10 years of coverage in the United withholding on that employee’s com- The company is responsible for all taxes
States and Spain combined, she will pensation after the close of the calendar on this income. The second category,
qualify for a U.S. Social Security re- year during which the compensation “stay-at-home” compensation, includes
tirement benefit. Under current law, was paid. amounts that would have been paid to
her monthly benefit upon reaching This IRS memorandum is notable the assignee regardless of whether the
age 67 would be $289, stated in cur- because it is one of the few pieces of IRS assignee was on an international assign-
rent dollars. guidance addressing the impact of global ment, such as base salary, annual bonus,
mobility tax compliance processes on an vacation pay, and equity compensation.
M’s life expectancy upon reaching employer’s federal income tax reporting Tax equalization policies vary across or-
age 67, according to the U.S. Social and withholding obligations, and it ap- ganizations, but, in general, the assignee
Security Administration’s actuaries, is pears to be the first published guidance is responsible for the amount of tax
87.6 years (247 months), meaning that to consider whether an overpayment of that would have been incurred on this
she would collect a total of more than tax based on a hypothetical tax estimate income had the assignee not relocated,

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