The US Social Security Administration is an independent federal entity responsible for social security, under the Social Security Act (1935). The SSA operates three social security plans: retirement benefits, survivor benefits and disability benefits.
Social Security is funded by salary tax provisions by individuals throughout their period of employment. Only individuals who paid regularly over time are eligible to benefits. As of 2020, social security is 12.4% of the gross income, and health tax is 2.9% of the gross income. Social Security covers income of up to $137,000, whereas health tax has no limit and is imposed on the entirety of the individual’s salary. Salaried employees with a high income have an added component of 0.9% health tax from a certain amount.
Salaried workers pay FICA and split social security and health tax payments with their employer, at a rate of 50%. Self-employed individuals pay the entirety of these taxes and can deduct have of the payment for income tax purposes.
In order to be eligible for retirement benefits, an individual needs to accumulate 40 credits. Each individual can accumulate up to 4 credits per year, meaning that it would take 10 years to achieve full coverage. One credit equals $1,470 of salary. For instance, those who earned at least $5,880 in 2020 have accumulated all their credits for that year.
The survivor and disability benefits are determined according to age criteria and the provisions over the years.
The US Embassy in Jerusalem has a special department for such benefits, the FBU. They are available to answer any and all questions.
Self-employed individuals and Social Security
The US has totalization agreements with many countries; these regulate the matter of social security and avoid the problem of double taxation of its citizens and residents. Israel, however, is not one of these countries. Therefore, self-employed individuals with a US citizenship are required to pay the IRS a self-employment tax – social security payments at a rate of 15.3% which also incorporate social security and health taxes. Taxes are collected from the net profit of the business before tax payments to Israel and before Israeli national insurance payments. This means that there is dual taxation of social security. Small businesses that make less than $400 a year are exempt from this payment.
Retirement benefits
Retirement benefits can be withdrawn from the age of 62, as long as 40 credits have accumulated in your account. Since retirement age is greater, those choosing to realize their rights at 62 are only eligible to 75% of the accumulated sum. From the age of 67 you may withdraw the entirety of the sum, and those who wait until the age of 70 receive an additional bonus.
The benefits are calculated according to the 35 highest salaries linked to the average salary index. After receiving the money, it is divided by the number of months in 35 years in order to create an average. Once we have an average annual allowance, we progressively reduce from it according to the average benefit. Effectively, those who earned a lower income keep most of the money, while those who earned more contribute to the system.
This calculator can help you revaluate the extent of the benefit to which you are entitled.
Those who are expected to receive a pension from Israel as well and therefore earn a lower US benefit should use this calculator. Israeli pension does not include Israeli retirement benefits.
Note that those eligible for a US retirement benefit or Social Security payments and permanently reside in Israel are eligible for a tax exemption in both countries, according to the tax treaty.
If you worked legally and enough credits were paid, you are entitled to the benefit. Supply the SSA with a signed W-8 in order to avoid taxation at source.
If you’ve reached retirement age (starting at 62) and accumulated all your rights, you can apply online through the SSA website. Click here.
If you reside in Israel, the tax treaty determines that these payments are exempt. If you reside in the US, they are exempt up to a certain income, after which they are taxable.
At the start of the consecutive year, the SSA provides US citizens with form 1099-SSA; non-US citizens receive form 1042-S.
