Application to fulfill U.S. social security quarters using time worked in the Netherlands
The client who is a U.S. citizen, living in the Netherlands, asked whether he can benefit from the U.S. social security retirement system, given the fact that for the past 10 years he had 39 qualifying quarters for coverage under the U.S. social security system. In one of the quarters, the income from the business was not U.S. sourced.
Advice to client
To be eligible to receive Social Security retirement benefits you generally must have contributed to the Social Security system for at least 40 quarters. The fact that one out of those 40 quarters is not considered as U.S. sourced income did not present the issue as the U.S. Social Security tax could be calculated on the income. However, the U.S. / Dutch social security tax treaty is based on exclusivity i.e. only subject to the rules of one country: in this case your country of residency (the Netherlands). So regardless of where the income was earned, the Netherlands will have exclusive right to levy Dutch social security tax. Therefore the U.S. may deny the quarter coverage qualification (but still take the tax). We advised the client to file requests with the U.S. Social Security Authority and the Dutch Sociale Verzekeringsbank (an organization that implements national insurance schemes) in order to use the client's Dutch accrual to fulfill his U.S. quarters.
Services to client
We asked the client whether he performed his business from his fixed office in the U.S. and, if so, when and in which state the business was performed and what was the amount of his income received in that way. Once the client provided us with the requested information we reviewed the situation and determined that he served as a household employee, as defined in the IRS Publication 926 and, as such he did not performe services from his fixed office in the U.S. According to the information provided and said conclusions we informed the client that the Dutch social security will still prevail based on his residency and it will it not be possible to have this count towards his U.S. quarters.
However, we advised the client that it could be possible to use the client's Dutch accrual to fulfill his US quarters. By invoking the provisions of the Agreement between the U.S. and the Netherlands on Social Security it is possible for the client to benefit from the U.S. social security system. The US SSA shall take into account, for the purpose of establishing entitlement to those benefits, periods of coverage which are credited under the laws of the Netherlands and which do not coincide with periods of coverage already credited under U.S. laws.
Therefore, upon the client's approval, we filed a request with the Dutch SVB to issue the statement indicating the periods of coverage under the Dutch social security laws. The Dutch SVB was required to clearly distinct periods of coverage based on the actual performance of work in the Netherlands from the periods of coverage only on the basis of occurred residency in the Netherlands. According to such statement, the U.S. SSA will credit one-quarter of coverage for every three months of coverage certified by the Dutch SVB provided that it was not already credited as a quarter of coverage under United States laws. The total number of quarters of coverage to be credited for a year shall not exceed four.