US Social Security and Medicare Quarters

Harlan Lyso

October 2004

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OCTOBER 2004

Medicare and Social Security for US int’l educators

by Harlan Lyso

Conversations with international schoolteachers and administrators at recent teacher recruitment fairs suggest that an increasing number of educators have chosen to devote the majority of their professional careers to working in international schools. Many of these educators are US citizens and plan to retire eventually in the US.

Many of the schools in which they worked however, were not eligible to contribute to the US Social Security system. While on the whole international school teachers seem to have made adequate, independent financial arrangements for retirement and would survive without Social Security income, nearly all US citizens recognize the value of US Medicare, effectively a federally funded medical insurance program for the retired.

Qualifying for Social Security and Medicare benefits is dependent upon an individual having earned 40 credits (these used to be called quarters) by contributing to Social Security and Medicare over the equivalent of 10 years.

Some international educators who have been preparing for retirement realized that they had not contributed enough credits to be eligible for US Medicare benefits.

In response to a survey of international school heads through HeadNet and AishNet, 31 school heads and several other knowledgeable people shared their perspective on opportunities for health care following retirement and provided possible solutions for those who wished to remain overseas and yet qualify for Medicare. Interestingly, 9 of the 31 responding schools provide their teachers with an opportunity to contribute to US Medicare, some requiring teachers to contribute. Two schools found that as organizations incorporated in the US and operating as foreign organizations offshore, they were obligated to pay into the social security/Medicare system on behalf of their staff. The other seven schools employed teachers through their US 501(c)(3) corporations.

Some schools provided this as an option for teachers who wished to participate in US Social Security and Medicare. Others required that all teachers be employed by the 501(c)(3) corporation and contribute to US Social Security and Medicare, though admittedly not all staff members found contributing to Social Security to be a desired benefit.

For the other 17 responding schools contributing to US social Security and/or Medicare was not possible, because the school 1) did not have a 501(c)(3) foundation;2) was precluded by local laws from hiring teachers through a foundation; or 3) chose not to hire through the foundation.

Given the number of schools that pay their teachers through their 501(c)(3) corporations, one obvious solution for US citizen teachers who have not yet qualified for Medicare is to seek employment at one of the international schools that provide opportunity for such contribution. Several school heads, however,

expressed concern about the viability of employing their teachers through a 501(c)(3) corporation. In fact two school heads abandoned their US 501(c)(3) corporations in favor of off shore foundations, contending that they saved a significant amount of money in civil liability and costs associated with maintaining the foundation.

The primary concern seemed to be the school’s civil liability if sued in the US, especially in light of the unusually large financial penalties awarded by US courts. Others contended that through directors’ and officers’ liability insurance the school would be adequately protected.

Perhaps the most interesting solution for those seeking to obtain the minimal number of Medicare credits was the possibility of earning money outside of salaried employment. One person pointed out that an individual could develop an income producing business (consulting, working for a friend, etc.) – possibly during the summer months. If one were to earn the equivalent of $936 per quarter and pay both the employer and employee FICA (social security) taxes on this income (15.3 percent), one would earn one credit of the 40 credits required to qualify for Medicare.

Interestingly, one could earn $3744 ($936 x 4) in one day, one month or one year and earn four credits. It seems to make no difference as long as one recognizes this income for tax purpose, files a Schedule “C” and pays the social security taxes.

Seemingly, income earned as an IB examiner, as a teacher of a university course or other similar income could be claimed as selfemployed income when filing US taxes, and thereby earn Medicare credits. Obviously, one would be wise to check with one’s own tax consultant, but the concept would seem viable for any number of US citizen international teachers.

Surprisingly, a significant number of US citizen school heads did not plan on retiring in the US. Several had researched retirement possibilities in Europe,

Thailand and Latin America and had found that reasonably priced, adequate medical facilities could be accessed in each location. Several of these people had earned the necessary 40 Medicare credits but simply did not desire to retire in the US.

Some suggested that even if one did qualify for Medicare, the coverage would not be adequate. In addition, there are those who retire early and cannot begin to draw Medicare benefits until they reach the age of 65. For them, finding affordable medical insurance can be a real challenge.

Finally, even if one had not earned the full 40 credits required for Medicare one could pay additional premiums to Medicare and obtain Medicare insurance. The official Medicare website (http://www.medicare.gov) provides more information on this possibility. Seemingly, a US tax attorney familiar with the issues of

those living internationally would be a valuable resource, but it is clear that with adequate planning US citizen international educators can qualify for Medicare.

Harlan Lyso is head of Seoul

Foreign School, Seoul, Korea.

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