U.S.-Japan Social Security Totalization Treaty: you MUST enroll in Japanese health and pension – *.

OK people. I also am getting a little bored with this, but here we go.

Ron Kessler’s Free Choice “group” (which really sounds like Ron, “Kaj” and maybe 15 other people — but hey, Jesus only had 12) are continuing their publicity stunts about enrolling or not enrolling in the Japanese health insurance system. They don’t say much about the pensions, but usually it’s part and parcel. People who don’t sign up for insurance, usually don’t sign up for pension, either.

As I mentioned yesterday, the latest out of the Choicers site is this:

Ron’s “group” (it’s probably Ron himself) is telling you that, if you are an American, not only do you not have to sign up for the Japanese health insurance and pension, but that it’s required that you get private insurance.

That’s just plain wrong. In fact, it’s the opposite.

As I mentioned yesterday, at the bottom of the post, the Japanese require that you sign up, in Japan, for pension and health insurance. That is the requirement. As the asterisk in the title suggests, however, there is one exception for you. And that is this:

1. you, here “short-term”, (or you–employer who sent you here short-term) certify that you are participating in the U.S. social security system, which means you and your employer each pay the 7.65% taxes on your compensation up to $106,000+. “Short term” is defined as being sent here for less than five years, or moving your business here for less than five years. (Be prepared to show how you were teaching English in America, if you’re doing it self-employed here . .. )

AND

2. you (yourself or through your employer) carry a private health insurance policy AND you agree that you will not use the Japanese health insurance system AT ALL.

The evidence of this that the Japanese will accept is a certificate that comes from the U.S. Social Security Administration in Maryland, called a “USA / J – 6”. (yoo ess ehhh, jay six.) Note that the USA is first, the J second. Plus the “six’.

If you have this, then everyone will acknowledge that your private policy is “good”, in a sense, and that you (self-employed) or your employer (if not self-employed) are paying the 15.3% or 7.65%, respectively, into the U.S. social security system, either as FICA withholding or as what is colloquially known as “SE tax” (self-employment tax).

By the way, SE tax is 15.3% on [almost] the first dollar of self-employment income. But only if your self-employment income is under $400 are you exempt. (That is to say, you are not getting around that tax.)

Ron or his site doesn’t tell you this. I just did. Or you can hear it from the Social Security Administration themselves, at this link.

Now, not only is Ron’s group’s site wrong, but they set you up to have to pay into U.S. social security on your compensation (earned income) in Japan. Because if you make a stink with the Japanese about how you’re covered under the private health insurance policy, there is no stopping anyone from reporting that fact to the IRS (since the Japanese and U.S. have a treaty on tax evasion as well, and the American pension insurance contribution is defined as a tax).

And without your exemption (which I’ll talk about in a minute) from the U.S. social security system, you’re screwed. You just have the “USA/J – 6″, which allows you a private health insurance policy, but also commits you (and your employer) to pay into U.S. social security on your 1040 (which, of course, you are filing each year.)

You maybe saved on health insurance, but now you potentially will have the IRS on your butt for SE tax if you don’t pay up. And remember, if you don’t file, you don’t close the year. So they can come at you 10, 20 years later, since you were a non-filer. (Otherwise, it’s normally just three.)

Now, if you are in the Japanese pension and health insurance system, you can obtain a different exemption form, called the ” J / USA – 6″ (notice that the “J”, for Japan is first.)

What the J/USA-6 enables you to do is avoid the U.S. social security or self-employment tax. The U.S. doesn’t care about whether you have health insurance or not, but since you agreed to the Japanese system, you have it from the Japanese. And if you want an additional gap policy, you can go and get that, too.

I, of course, got my J-USA/6. So on self-employment income, if and when I have it, I do not owe Uncle Sam (for SE tax).

(Do you have your J-USA/6? Do you think American Ron Kessler has his?)

Now, the J-USA/6 only came to be of any kind of usefulness after October 1, 2005 (the date that the U.S.-Japan totalization treaty became effective). So maybe the word has not gotten around in the last four years? But anyway, every American who works in Japan and should be covered by the Japanese systems should obtain this certificate of compliance, from the Japanese, unless they meet that very tight restriction to be covered back in America and not use the hospitals here.

I would not want to live in a country where I agreed not to use the medical system there.

I doubt the Japanese totally shut you out, if you show up in the emergency room. And maybe your private brand health insurer will cover the bill after you pay it. But in theory, the Japanese can charge you what they like. You’re not in their system. (Oh oh oh! And the Japanese can arguably say that you agreed not to be in their system!)

Please read up on the “J/USA-6” and whether you should have one. If you want one, you must be enrolled in Japanese pension and social security.

Thanks for pointing the totalization treaty out again, Ron!

[Update 5/11/12: The social security administration screenshot.

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12 comments

  1. sendaiben · March 4, 2010

    Hi Hoofin

    I don’t know Ron Kessler at all, but Kaj is a good guy. A conscientious and helpful school owner and teacher trainer, and a reasonable person to knock heads with (we had a 20-email exchange about the freedom foundation).

    He was trying to get hold of you a couple of months ago.

    cheers

    sendaiben

    • hoofin · March 4, 2010

      It’s really easy to get in touch with me. You can either leave a post message, marked/indicated “do not publish”. Or send me an e-mail at the information in “CONTACT” above. I don’t check the e-mail everyday, but as you can see from the blog, I am routinely updating—usually daily.

  2. chuckers · March 5, 2010

    “But anyway, every American who works in Japan and should be covered by the Japanese systems should obtain this certificate of compliance.”

    My reading of the link you provided is that if you are a self-employed American or working for an American company and in Japan for less than 5 years [USA/J-6] or for a Japanese company being sent to work in the US (and thus subject to US social security in either case) you will need the J/USA-6 [USA/J-6]. [Hoofin’s Note: neither in the second instance. An American sent (back) to America for a Japanese company is taxed the same as any other U.S. resident.] Japan local hires can’t get this, even if they are working for US companies. [Note #2 – this is right in so far as an American would be back home, paying under the normal rules.]

    Americans working for non-US companies in Japan (that are hopefully on the up-and-up and paying into the Japanese system) or US companies that have them located in Japan for more than 5 years shouldn’t need (can’t get) the J/USA-6 exemption. [Note #3 – See comment below.]

    Does that sound right?

    • hoofin · March 5, 2010

      Hi Chuckers, yes, that’s my reading, too. With the one added part that an American who has self-employment income in Japan is wise to get a J/USA-6 certificate if they don’t want to pay the SE tax to Uncle Sam.

      The USA/J-6 is the United States’ certifying that the American resident in Japan is covered by U.S. social insurances (social security and private health insurance).

      The J/USA-6 is Japan’s certifying that the American resident in Japan is covered by Japanese social insurance.

      In the context I’ve spoken about it this week, if someone (American) carries on a business for profit here where they would be subject to self-employment tax back home (15.3%), they need the J/USA-6. And this would only cover self-employment taxes due on amounts earned starting from October 1, 2005.

  3. chuckers · March 5, 2010

    “Hoofin’s Note: neither in the second instance. An American sent (back) to America for a Japanese company is taxed the same as any other U.S. resident.”

    Unless you are employed by a Japanese company and being sent back to the US for less than 5 years. Quid pro quo it seems.

    • hoofin · March 5, 2010

      I don’t think so.

      I think it’s a very technical reading. Because the treaty talks about “person[s] covered under the laws of one Party work[ing] temporarily . . . in the territory of the other Party.”

      So an American working for a company in Japan is sent back to America. It implies that he/she was not working “not temporarily” in Japan (a double negative saying that they were in fact working temporarily in Japan). In the ordinary case, the laws of America would apply. Except if they were hired in Japan by the American company, and then sent to America.

      I have to think about that one more, but it is the rare exception to all the usual situations. And on top of the latest Choicers misinformation campaign, I’m not sure what coming to the answer on it (if there is one) would show.

  4. dhagen · February 11, 2012

    Hello Hoofin,
    Always enjoy reading your thoughts; I check in almost every day, but more often as a lurker than a contributor…(Although you may remember me as the one asking the really geeky questions about WEP in Oct/2010…)
    So, I do know that this topic gets old for you but…
    I’m really curious about whether you have ever gotten around to “think(ing) about that one more” as you mention in the last paragraph of you comment above.
    I would REALLY be in interested in any conclusions/opinions that you’ve reached.

    * * * * * * * *
    This section below the asterisk isn’t really intended to be published…

    [redact]

    Any advice/suggestions (be it your own thoughts, or pointing me in the direction of some useful information/source/advisors…), would be greatly welcomed.

    If you are open to some dialogue on this (that is if you have some time and inclination), I wonder if you would mind taking it offline?
    Say by sending me an e-mail?

    But I will absolutely understand if you can’t do that.
    And either way, know that I appreciate the work you put into this blog!

    Best,
    Doug

  5. Carl · February 11, 2012

    Great information and links here. I really appreciate your blog.
    I am probably going to lambasted for this question, but I am self-employed in Japan, and I was unaware of the requirement for paying nenkin or SS tax. Now that I have started my taxes, I now know.
    My question: Since you can pay nenkin back to two years, can I get an J/USA6 back-dated to 1/2011 (January of last year)?

    Thanks,

    Carl

    • hoofin · February 11, 2012

      I think the answer to this is: yes. Here’s why: if the Japanese government is going to back-enroll you into the kokumin nenkin, from the point where you should have been in it, then you are covered by the Japanese for that period. Any period where you are covered by the Japanese, you are not covered by U.S. social security (you pay one or the other, but not both).

      Of course, the nenkin is almost always cheaper than the U.S. social security, as an out-of-pocket tax/cost. You want to be in the nenkin. You don’t want the IRS asking for self-employment tax on wages earned in Japan.

      • Carl · February 12, 2012

        Thanks. I’ll stop by the local ward office this week to get that started, and I’ll let you know how it goes.
        You remind me of my older gaijin sempai who always gave me helpful and accurate advice when I was a student here many years ago! I appreciate it.

        Carl

        • Carl · February 14, 2012

          I registered for kokumin-nenkin today, and they confirmed that a J/USA6 could be issued by the local nenkin office if needed.
          They would send me by nenkin-techo and payment slips for the past two years within three to four weeks, and they said that it was “optional” to pay for past months (but I think that I will).
          And so, it looks like you can backdate your enrollment for up to two years.

          Thanks again for the advice!

          • hoofin · February 14, 2012

            Good for you, Carl. You should be able to get a tax deduction for any nenkin payments that you make, reducing both your national and residence tax (the next year). Also, reducing the ward health insurance (next year), if you are on that, too.

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