The U.S. Social Security Administration recently announced that the United States and Iceland signed a totalization agreement to protect U.S. and Icelandic employers and workers from dual social security tax liability.1 The agreement has not yet been made public. Once the agreement enters into force, Iceland will be the 27th or 28th country with which the United States has a social security totalization agreement. (The most recent agreement signed by the United States is with Brazil. That agreement is currently undergoing legislative review. For prior coverage, see GMS Flash Alert 2015-084, July 13, 2015.)
The agreement between the United States and Iceland will eliminate dual social security contributions, which occur when a worker from the one country works in the other country. Also, once a Certificate of Coverage is obtained, transferred workers can remain covered by their home country social security system. This will help assure continued contributions into their social security systems and benefits entitlement, as well as bringing peace of mind to many workers deciding on taking an assignment or on assignment that may have concerns about their contributions and future benefits when they are assigned to work in the United States or Iceland. On that note, an important feature of the U.S.-Iceland social security totalization agreement – as with many such agreements – is that it acts to close any gaps in benefit protections for workers who divide their careers between the two countries where their contributions to the home country system may be interrupted (provided they are paying into the host country system).
The agreement should help facilitate the cross-border movement of workers between Iceland and the United States and help to lower costs for companies that may have employees who are experiencing double taxation.
The current rules and practices remain in effect until the new agreement enters into force.
Before the agreement can enter into force, each country has to complete a review process. The Icelandic Parliament must ratify the agreement. And in the United States, the president must transmit the agreement to Congress for a required 60-day review period.
1 See the announcement on the Social Security Administration website.
The above information is not intended to be "written advice concerning one or more Federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only.
The information contained in this newsletter was submitted by the KPMG International member firm in the United States.
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