Hey, Aren’t You Supposed To Be Paying Social Security?

Maybe, maybe not
BY: DON D. NELSON

The US does not have a social security treaty with Mexico. Therefore, though you can exclude $104,100 of your earnings while living and working abroad as a full time resident of Mexico, that exclusion does not apply to the social security tax and medicare tax, (which is 15.3% of your net profit- and is referred to as self employment tax) paid to the IRS by self employed US individuals working in Mexico. The exclusion only applies to your US income tax and not the self employment tax.

If you are a bonafide employee of a Mexican employer (or your own Mexican corporation) you do not have to pay US social security and medicare, (self employment tax). Therefore many Americans set up their own Mexican corporation and become Mexican employees to avoid having to pay that 15.3 % tax on their earnings. Mexican social security which must be paid if you are an employee of a Mexican corporation is significantly lower.Remember to be a bonafide employee (as defined by the IRS) you must be treated the same and have the same withholdings and benefits as any legal employee would have under Mexican lw.

If you have lived and worked in Mexico for many years and not paid US social security and medicare, it can cause your benefits to be adversely affected. For social security benefits to accrue you must have paid the social security tax into social security for at least 10 years. Your failure to pay into US social security for at least 10 years can reduce or eliminate your eligibility for US Medicare benefits also. You should contact social security immediately, (they are very helpful), if due to your work history with foreign employers you are concerned about receiving those benefits when you retire in the USA.T hey can advise you on what needs to be done to solve your potential problem. You can learn more at www.ssa.gov

Don D. Nelson is both an attorney at Law and a partner in Kauffman Nelson LLP,Certified Public Accountants. He has assisting Americans in Mexico with their US taxes for over 20 years. is an expert in tax planning for individuals living and working in Mexico US Tel. 949-480-1235, Email:ddnelson@gmail.com,Website.www.taxmeless.com