Wages paid to U.S. citizens and resident aliens employed outside the United States are generally subject to Social Security and Medicare tax if the employer is an American employer.
The term "American employer" means a person who is:
- An individual who is a citizen or resident of the United States.
- A partnership, if two-thirds or more of the partners are citizens or residents of the United States.
- A trust, if all of the trustees are citizens or residents of the United States, or
- A corporation organized under the laws of the United States or of any State or the District of Columbia.
In addition, an American employer with a foreign affiliate may request that Social Security and Medicare taxes be withheld from the U.S. citizen and resident alien employees of the foreign affiliate by filing Form 2032, Contract Coverage Under Title II of the Social Security Act.
Certain types of services are exempt from Social Security and Medicare taxes. Examples of exempt services include:
- Compensation paid to agricultural workers.
- Compensation paid to students employed by a school, college, or university if the student is enrolled and regularly attending classes at such school, college, or university.
- Compensation paid to a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry.
In some situations a foreign country will impose its own Social Security tax on the wages of a U.S. citizen or resident alien employed in that foreign country by an American employer. This could create a situation in which an employee's wages are subject to Social Security taxes imposed by two different countries. The United States has entered into Totalization Agreements with some countries in order to avoid this double taxation.
For a list of other exempt services, refer to Publication 15, Circular E, Employer's Tax Guide.
Form 941, Employer's Quarterly Federal Tax Return, and Instructions
Internal Revenue Code Section 3121