A portion of your Social Security retirement, survivors, or disability benefits may be subject to Federal Income tax. Supplemental Security Income (SSI) or Special Veterans Benefits (SVB) are not taxed. Generally, SSI makes monthly payments to people who have low income and few resources and are age 65 or older; blind or disabled. Disabled or blind children also can receive SSI. SVB can include a monthly compensation paid to veterans who are hurt or who acquire a medical condition during military service.
Under current law, no federal income tax is paid by any person (whether US or non-US) on more than 85 percent of his or her Social Security benefits. The federal income tax rules and filing requirements are different for US persons and non-US persons.
A US person includes a citizen of the United States and an alien who meets the tax definition of a US “resident” alien. A “resident” alien is a US green card holder or a foreign individual who is physically present in the US for substantial time periods. Details can be found in my earlier blog piece here. All other persons are referred to as “nonresident aliens” (NRA).
Generally, if you are a US person, you are subject to US income tax filing requirements and your worldwide income is subject to US income tax, regardless of whether you live in the US or in a foreign country. Depending on your income level your Social Security benefits may be subject to tax.
Since the Social Security Administration (SSA) does not withhold income tax from Social Security benefits paid to a US person, if you are required to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS. In lieu of such estimated payments, an individual can choose to have taxes withheld on the benefit payments. This is done by completing Form W-4V, Voluntary Withholding Request.
If you are a NRA for income tax purposes SSA is required to withhold a 30 percent flat income tax from 85 percent of your Social Security retirement, survivors, and disability benefits. This results in a withholding of 25.5 percent of your monthly benefit. If a tax treaty applies, you may be exempt from this tax, or subject to a lower rate. See Table 1 in Publication 901, for a list of Treaty countries that exempt US social security benefits from US tax. If you are a resident of such a country no withholding will be undertaken if you properly claim the treaty benefits. The following countries are listed: Canada, Egypt, Germany, Ireland, Israel, Italy, Japan, Romania, UK. A 15% reduced treaty rate is available under the Treaty with Switzerland. The Social Security Administration will not withhold tax from your benefits (or will withhold at the lower Treaty rate) if you provide the evidence the Administration requires to show that you qualify for the tax treaty benefit.
The address in Social Security records should show the tax treaty country as the country of residence and the beneficiary should actually reside in the tax treaty country.
Evidence an individual makes his/her home in a tax treaty country includes, but is not limited to:
- An identification card issued by that government;
- A tax record by that government for the prior year;
- A voter’s registration card issued by that government;
- Evidence of eligibility for welfare and/or health benefits from that country;
- Other recent evidence such as utility bills, etc., showing an address in that country.
The Social Security Administration has a very useful tool to assist individuals in determining whether they can continue to receive their retirement, disability or survivor’s payments outside the United States.
For further information contact Social Security.
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