#14 Japan-U.S. Social Security Agreement: Bridging Pension and Tax Challenges for Global Workers

Since Japan signed its first Social Security Agreement (SSA) with Germany in 2000, it has progressively expanded similar agreements with 23 other countries, including the U.K., South Korea, the U.S., France, Australia, and China. Most recently, Italy joined the network on April 1, 2024. These agreements play a crucial role in assisting globally mobile workers by addressing challenges related to pension contributions and eligibility.

This article focuses on the Japan-U.S. Social Security Agreement and its key benefits for workers in both countries.

✅ Key Benefits of the Japan-U.S. Social Security Agreement

1. Avoiding Double Social Security Contributions

Without the agreement, individuals working in both countries could be required to pay social security contributions to both Japan and the U.S. on the same earnings. The agreement ensures that workers only contribute only to one country, depending on the duration of their assignment:

✔ Assignment of 5 years or less in the host country: The worker continues contributing to their home country’s social security system and is exempt from contributions in the host country.

✔ Assignment exceeding 5 years in the host country: The worker must contribute to the host country’s social security system instead.

📌 Example:

A U.S. software engineer is sent by their American employer to work at a branch office in Japan for 4 years. Under the agreement, they continue paying only U.S. social security taxes and are exempt from Japanese social security contributions. However, if the assignment extends to 6 years, they must begin contributing to the Japanese system instead.

2. Expanded Pension Eligibility through Combined Contributions

Workers often struggle to meet the eligibility requirements of one country’s pension system. For instance, Japan’s National Pension system typically requires at least 10 years of contributions for eligibility.

The agreement allows workers to combine their contribution periods in both countries to qualify for pension benefits. This is particularly beneficial for individuals who do not meet the minimum contribution requirements in one country but have contributed to both systems.

🔹 Key Points:

✔ In the U.S., the agreement covers social security taxes, retirement benefits, disability benefits, and survivor benefits, but excludes Medicare and Supplemental Security Income (SSI).

✔ In Japan, the pension amount is based only on the actual contributions made in Japan, not on the combined total period.

📌 Example:

- A worker with 6 years of contributions in Japan and 14 years in the U.S. would not meet Japan’s 10-year requirement. However, by combining both periods, they can qualify for Japanese pension benefits.

- The pension amount in Japan will be calculated based solely on the worker’s 6 years of contributions in Japan, not on the full combined period.

The following diagram highlights how the Japan-U.S. Social Security Agreement helps workers by eliminating dual social security contributions and simplifying pension eligibility:

✅ Conditions for Maintaining Coverage Under the U.S. Social Security System

For U.S. citizens who wish to remain covered by the U.S. Social Security system while working in Japan, the following conditions must be met:

✔ The worker must remain enrolled in the U.S. social security system throughout their assignment in Japan.

✔ The worker must continue to be employed by a U.S.-based employer while working in Japan.

✔ The assignment to Japan must have an expected duration of five years or less.

✅ Certificate of Coverage: Proof of Exemption

To avoid paying social security contributions in both countries, employers must obtain a Certificate of Coverage (Form USA/J 6) from the U.S. Social Security Administration (SSA). Requests should be sent to:

📍 Social Security Administration

📍 Office of Earnings and International Operations

📍 P.O. Box 17741, Baltimore, Maryland 21235-7741, USA

📍 Fax: (410) 966-1861

✅ Important Considerations for Combining Contribution Periods

✔ No Double Counting: Contribution periods where a worker was covered by both systems simultaneously, will only be counted once.

✔ Bilateral Agreements Only: The agreement applies only between Japan and the U.S. Contribution periods from other countries cannot be combined.

✔ Application Process: Workers should apply for benefits through the pension office of their country of residence. The respective authorities will coordinate to confirm and calculate total contribution periods.

🎯 Summary and Key Takeaways

✅ Reduced Tax Burden: Workers on temporary assignments avoid the financial burden of double contributions by remaining covered under their home country’s system.

✅ Easier Pension Eligibility: Combined contribution periods help workers qualify for benefits even if they do not meet the minimum requirement in one country.

✅ Practical and Financial Benefits: The agreement streamlines social security compliance for U.S. nationals in Japan and Japanese nationals in the U.S., making international assignments more manageable.

📌 Useful Resources

🔗 U.S. Social Security Administration: Totalization Agreement with Japan

🔗 Japan Pension Service: Japan-U.S. Agreement Details

🔗 Ministry of Health, Labor and Welfare (Japan): International Pension Agreements

🌍 Final Thoughts

This agreement showcases how international cooperation can help address the complexities of global employment, ensuring workers are not disadvantaged when working across borders. As the world becomes increasingly interconnected, agreements like this serve as essential frameworks for global mobility and social protection for workers.

If you are considering expanding your business to Japan, please contact Quantum Accounting Inc. for a free consultation during the planning phase or general consultation (available in both English and Japanese). Quantum Accounting's professionals are experts in accounting, tax, legal, and labor issues. Our goal is to provide you with a one-stop professional firm for all the services you need to expand your business into Japan. We are confident that we can help you.