A US citizen working in India for a US employer generally keeps paying US Social Security and Medicare tax (FICA). If the person works for an Indian subsidiary, FICA generally does not apply unless the US parent has a Section 3121(l) agreement with the Treasury. Self-employed US citizens abroad generally keep paying self-employment tax. Confirm every case with a US CPA.
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Key facts
| US employer, work in India | FICA generally continues for a US citizen or resident working abroad for an American employer |
|---|---|
| Indian subsidiary employer | FICA generally does not apply unless a Section 3121(l) agreement covers the subsidiary |
| 3121(l) agreement | An American employer can elect coverage for US citizens and residents employed by foreign affiliates in which it holds at least a 10% interest |
| Self-employed | Self-employment tax generally continues |
| Totalization | No US-India agreement known to be in force, so no certificate of coverage |
| Who advises | Your US CPA or tax counsel; AU Corporate handles the Indian side |
Who pays FICA in each structure
| Structure | US FICA | Indian provident fund |
|---|---|---|
| Seconded; stays on the US parent's payroll; cost recharged to India | Generally applies | May still apply if the worker is an international worker of an Indian covered establishment; analyse the facts |
| Local hire or transfer to the Indian subsidiary's payroll | Generally does not apply | Generally applies as an international worker |
| Indian subsidiary payroll with a Section 3121(l) agreement by the US parent | Applies through the agreement | Generally applies as well, because there is no totalization agreement |
| Employer of Record in India | Generally does not apply to the EOR's employee | Applies through the EOR as employer |
| Self-employed US citizen in India | Self-employment tax generally applies | Not as an employee; check Indian status |
Section 3121(l) agreements
A US parent can enter an agreement with the Treasury to extend Social Security coverage to US citizens and residents employed by its foreign affiliates, meaning foreign entities in which it holds at least 10% of the voting stock or profits interest. The parent pays the equivalent employer and employee Social Security and Medicare taxes. Companies use these agreements when they want the worker to keep earning US coverage while on a local payroll. The cost of this has to be weighed against the Indian provident fund cost, which can apply in addition.
Benefits and credits
- US Social Security credits build only from covered work, so long periods abroad outside FICA can leave gaps in the earnings record.
- Medicare does not generally pay for care received in India, so expats need private or employer health cover.
- Social Security retirement benefits can generally be paid to a beneficiary living in India, subject to the SSA's rules. Confirm with the SSA.
Planning steps
- Decide the legal employer for each US expat.
- Ask your US CPA to confirm the FICA result for that structure and whether a Section 3121(l) agreement is worth having.
- Ask us to confirm the Indian provident fund result for the same structure. See EPF for international workers.
- Compare the total cost across structures and decide.
- Document the choice in the assignment letter and the payroll set-up.
What this means for a US parent
- Do not assume that moving someone onto Indian payroll ends US contributions or begins Indian ones in isolation. Test both together.
- Put the structure in the intercompany agreement so the recharge and the transfer pricing treatment match the facts. See transfer pricing.
Mistakes to avoid
- Assuming FICA stops when an American leaves the US.
- Assuming FICA stops when the person is moved to the Indian subsidiary, without checking any agreement.
- Forgetting that Medicare does not cover care in India.
- Using a US assignment policy that relies on a certificate of coverage that does not exist for India.
How AU Corporate handles this
We handle the Indian side, including payroll, provident fund and Withholding Tax on salary, and work with your US CPA on the FICA analysis.
Related services: HR and payroll
Official sources
Rules on this page can be verified at the primary sources: the US Social Security Administration's page on Section 3121(l) agreements, the Internal Revenue Service and the Employees' Provident Fund Organisation.
Frequently asked questions
Do Americans working in India pay US Social Security tax?
Generally yes if employed by a US employer. If employed by a foreign company such as an Indian subsidiary, generally no unless a Section 3121(l) agreement covers it. Confirm with a US CPA.
What is a Section 3121(l) agreement?
An agreement between a US employer and the Treasury that extends Social Security coverage to US citizens and residents working for its foreign affiliates.
Which foreign companies are affiliates for this purpose?
Foreign entities in which the American employer holds at least a 10% interest, by voting stock for corporations.
Do self-employed Americans in India pay self-employment tax?
Generally yes, because there is no totalization agreement to relieve it.
Does Medicare cover care in India?
Generally no. Medicare does not normally cover care outside the US.
Can Social Security be paid to someone living in India?
Generally yes, subject to SSA rules. Check with the SSA.
Does the move to Indian payroll end US coverage?
It can, because FICA generally applies only to American employers unless an agreement exists. It also triggers Indian provident fund rules, so test both.
Who prepares the US side?
Your US CPA. AU Corporate handles the Indian side and coordinates.
Related guides
Social Security for US Expats in India: Is There a US-India Totalization Agreement?
Is there a US-India social security agreement? What applies to a US expat in India: provident fund, US FICA, double coverage and planning.
Read the guide →EPF for International Workers in India: What US Expats and Their Employers Must Know
How Indian provident fund applies to foreign nationals: international worker rules, no wage ceiling, withdrawal, court rulings and the 2026 EPF Scheme.
Read the guide →US Parent Obligations When You Own an Indian Subsidiary
US reporting that follows when you own an Indian subsidiary: Form 5471, FBAR, Form 8938 and international tax regimes. A guide for US finance teams.
Read the guide →Employer of Record vs. Subsidiary in India: When to Use Each
Compare an Employer of Record with your own Indian subsidiary: speed, control, compliance, tax presence and when to convert. A guide for US companies.
Read the guide →Sources
Last updated 14 October 2026. General information only, not legal or tax advice. Indian rules change often; confirm current requirements before acting.