The topic of international taxation is complex and lengthy, so forgive me for generalizing (there are exceptions to some of my comments), this is long enough already.
**On resident aliens paying U.S. income taxes: ** The rules are complex, but basically any individual who is physically present (or resides) in the U.S. for more than 183 days in the tax/calendar year, must pay full taxes on worldwide income. ((ASIDE: A person who is physically present for more than 90 days but fewer than 183 days pays tax a part-year resident))
Income tax means all income taxes, including capital gains tax. It’s nowhere near so easy to avoid U.S. tax as simply to have a fortune invested in Europe. Tax rules are complex, and taxing authorities ain’t dumb.
The U.S. has tax treaties with about fifty countries, and this complicates the issue. Mostly, those treaties are aimed at helping the individual avoid double-taxation, and clarifying which taxing agency has authority in what circumstances. Exceptions to the general rules I’ve cited above can be made, in different treaties, for pension payments, payments to creative artists, students, etc.
The complexity increases because U.S. citizens (and green-card holders – lawful permanent resident aliens) are taxed by the U.S. on their worldwide income, regardless of residence. Almost every other country taxes based on residence, regardless of citizenship.
Non-citizens who are non-residents pay taxes on their U.S.-sourced income only (prorata by physical presence if other determination is not feasible.)
**On U.S. social security taxes: ** Generally speaking, every person employed in the U.S. is subject to social security taxes, regardless of citizenship. This means that a non-citizen who works in the U.S. for (say) four or five years (fewer than 40 covered quarters under U.S. Social Security) will have contributed to U.S. social security but will receive no benefits from it. Tough: as several have said, it’s not a pension savings fund, it’s a tax.
The reverse is also true – a U.S. citizen working abroad is (generally) not subject to U.S. Social Security tax, but is subject to the social security rules of the country where he/she is employed. A U.S. citizen who works in Japan, for instance, for only a few years, would be paying into Japanese social security (higher rates than the U.S.) but would receive no benefit.
The major exceptions are that the U.S. does have social security treaties (called “totalization treaties”) with 17 nations (most of Europe and Canada). Such treaties, broadly speaking, try to overcome the problem of benefit eligibility for nationals working in other treaty state. For instance, a German citizen working in the U.S. for only five years would not normally receive U.S. social security benefits (too few calendar quarters of coverage); however, the terms of the social security treaty override that eligibility restriction – the German citizen would be able to collect a U.S. social security benefit, based on the period of coverage. The treaties are reciprocal for a U.S. citizen working in Germany.
Under certain conditions, the treaties allow exemption from social security tax in the host country. For example, a German citizen transferred to the U.S. for fewer than five years, by a German parent company, could remain covered (contributions and benefit eligibility) by German social security and be excused from contributions to U.S. social security, under the terms of the treaty.
So this is a long-winded way of saying that:
citizenship generally speaking has nothing to do with requirements for contributing to U.S. social security; except in the special cases covered by treaties (usually limited to a five-year transfer period.) Renouncing your citizenship will not affect your social security obligations.
Phew! Sorry to be so longwinded, my company charges big bucks for me to say stuff like this to client companies.
