Social Security Benefits and Americans Living Abroad

Currently approximately 350,000 American retirees receive Social Security benefits in foreign countries. Moreover, according to Travel Market Report, as many as 3.3 million American baby boomers are planning to retire abroad. Many current and future American expatriates are puzzled by the same questions. We wrote earlier about social security taxes.  Americans living abroad want to know the amount of social security they are eligible for if they receive a foreign pension. Also, American expats would like to learn the options to receive social security payments while residing overseas.

This is an email from one of our clients, Americans living abroad. “I plan to retire overseas. Social security benefits will be my primary source of income, although, I have a rental property in the USA. I read your article about the amount of social security that might be taxable. I would like to learn more about other expatriate tax issues related to social security benefits for American expatriates.”

Key expatriate tax issues related to social security benefits for American expats living Abroad

In which countries can American Expats receive social security benefits?

Countries of residence. Americans living abroad can easily receive social security payments. The restrictions apply to American expatriates residing in Cuba and North Korea. U.S. citizens residing in these countries must move to another country in order to receive payments.

What are the payment options to receive social security payments?

Payment options. There are several options to receive social security benefits while living abroad. One option is a debit card account under the DirectExpress card program. The second option (and the most popular) is electronic payment. Electronic payments can be made to a U.S. or foreign bank account in multiple countries. The list of these countries is extensive:

  1. Anguilla, Antigua & Barbuda, Australia, Austria
  2. Bahama Islands, Barbados, Belgium, British Virgin Islands
  3. Canada, Cayman Islands, Cyprus
  4. Denmark, Dominican Republic
  5. Estonia
  6. Finland, France
  7. Germany, Greece, Grenada
  8. Haiti, Hong Kong, Hungary
  9. India, Ireland, Israel, Italy
  10. Jamaica, Japan
  11. Malta, Mexico
  12. Netherlands, Netherlands Antilles, New Zealand, Norway
  13. Panama, Poland, Portugal
  14. St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, South Africa, Spain, Sweden, Switzerland
  15. Trinidad-Tobago
  16. United Kingdom

How do Bilateral Social Security Agreements affect the social security benefits?

Bilateral Social Security Agreements. Americans living abroad who did not accumulate 40 quarters under Social Security in the USA but contributed to a social security system in a foreign country with a bilateral totalization agreement, might still be eligible to receive social security payments.

What is Windfall Elimination Provision for American expats?

Foreign pension and Social Security. American living abroad who are eligible to receive a foreign pension or other type of pension from federal, state or local government agency as well as non-profit organization, might be subject to Windfall Elimination Provision (WEP). It means that SSA will determine the amount of social security benefits based upon other earnings. There are several exceptions to this provision.

  1. Non-residents. Social security payments made to non-resident aliens (NRA) living abroad might be subject to 30% tax withholding.
  2. Residence requirements and NRAs. Non-resident aliens residing in countries without a bilateral social security agreement might be disqualified from receiving social security payments if they reside outside of the USA for more than 6 months.
  3. Self-employed American expatriates. Americans living abroad are required to pay self-employment taxes under SECA unless they reside in a country that has a totalization agreement with the U.S.A. It is required even if American expatriates receive social security benefits.
  4. Foreign social security accounts. These accounts are not reported on the FBARs.

Conclusion

American retirees must review all expat tax issues before they move abroad. American expatriates who need help with US expat tax preparation, overseas taxes, foreign tax credit, social security issues affecting U.S. citizens living abroad, FBAR, FATCA must consult an expat tax CPA that provides international tax services. International tax experts at Artio Partners are here to help you.