International Programs

Employees of Foreign Affiliates

If you are a U.S. employer sending an employee abroad to work for a foreign affiliate of your company (rather than directly for you), the employee can qualify for a U. S. Certificate of Coverage. The employee can qualify only if you have entered into an agreement with the Internal Revenue Service under section 3121(l) of the Internal Revenue Code (IRC) to pay Social Security taxes for U.S. citizens and residents employed by the foreign affiliate. (Click here if you wish to read IRC section 3121(l).) An employer enters into a section 3121(l) agreement by filing IRS Form 2032 with the Internal Revenue Service. Form 2032 includes additional information and instructions for entering into a section 3121(l) agreement. If you have the Adobe Acrobat Reader, you can view Contract Coverage Under Title II of the Social Security Act (IRS form 2032). If not, you can request the form by calling IRS' toll-free order number 1-800-TAX-FORM.

A U.S. employer is permitted to enter into a section 3121(l) agreement with respect to any foreign affiliate in which the U.S. employer owns a 10 percent share, either directly or through other affiliates. The 10 percent share must consist of 10 percent of the voting stock in the case of a corporation or 10 percent of the profits in any other case.

Under a section 3121(l) agreement, the U.S. employer agrees to file all required reports and remit amounts equivalent to the employer and employee FICA (i.e., Social Security) taxes that would be due for U.S. citizens and resident employed by the foreign affiliate. If an employer has more than one foreign affiliate, a section 3121(l) agreement does not have to apply to all of them. The agreement must apply, however, to all U.S. citizens and resident employed by any foreign affiliate that is designated in the agreement. A section 3121(l) agreement is irrevocable with respect to any foreign affiliate included in the agreement.