The U.S.–Japan Social Security Agreement determines which country’s social security system applies to covered workers. For qualifying expatriates, it directly affects U.S. Social Security and Medicare taxes.
An exemption is not automatic simply because an employee is Japanese or remains on Japanese payroll.
Can an Employee Assigned from Japan Be Exempt?
An employee temporarily transferred from Japan to the United States may remain covered by Japan’s system if the assignment is expected at its outset to last five years or less and the other agreement requirements are met.
The employment relationship, sending employer, and host entity must also be reviewed. Japanese pension participation alone does not establish eligibility. Reference: SSA, Detached Worker Rule Under the U.S.–Japan Agreement
What Changes in Payroll?
For covered wages assigned exclusively to Japan’s system, both employee and employer U.S. Social Security and Medicare taxes are exempt. Income tax withholding must be assessed separately. Reference: IRS, Totalization Agreements
| Item | Treatment |
|---|---|
| Social Security and Medicare taxes | Exemption may apply to qualifying wages |
| Federal, state, and local income taxes | Determined separately |
| Unemployment taxes and workers’ compensation | Reviewed under their own rules |
A social security exemption does not make the salary exempt from income tax.
What Is a Certificate of Coverage?
A Certificate of Coverage documents which country’s system applies under the agreement.
When Japanese coverage continues, the certificate is requested through the appropriate Japanese institution and shared with the U.S. employer or payroll provider. The U.S. employer should retain it as evidence of exemption. References: Japan Pension Service, Application Forms, IRS, Totalization Agreements
Payroll should verify that the employee, coverage dates, and employment details match the actual assignment.
What If the Assignment Is Extended?
Coverage does not automatically continue beyond the certificate’s period. An extension request or a change in applicable coverage may be necessary. Exceptions beyond the five-year rule require review and are not guaranteed. Reference: Japan Pension Service, Extension Applications
Does This Affect Gross-Up Calculations?
Yes. Changes in social tax treatment can affect employee deductions, gross-up amounts, and total employer costs. Payroll settings should be reviewed when coverage expires or assignment circumstances change.
Medicare tax exemption also does not provide U.S. medical insurance. Healthcare coverage must be arranged separately. Reference: SSA, Scope of International Agreements
How We Can Help
Threefold Hara CPA assists with reviewing assignment information and coverage certificates and reflecting the applicable treatment in payroll, gross-up calculations, and payroll tax returns.
This article provides general information. Agreement eligibility and certificate issuance or extensions are subject to review by the relevant authorities.
Information reviewed: October 15, 2026
