Taxes on US Social Secuity income for a Swiss Citizen

[S. Wesley Ariarajah]

I am a Swiss citizen who worked in the US for 17 years with a Green Card. On
my retirement and permanent return to Switzerland I abandoned my permanent
residence status in the US by surrendering my Green Card. Now I get social
security benefits from the US. This is my question: Is my social security
payment taxable in the US, I should declare it only in Switzerland for
taxation?

--
posted from
http://www.beansmart.com/taxes/taxes-on-us-social-secuity-income-for-a-swiss-citizen-44381-.htm
using BeanSmart's Web, RSS and Social Media Interface to
misc.taxes.moderated and other accounting and tax groups

.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>

[John Levine]

In article <7d94$5755c219$41b57997$25...@news.flashnewsgroups.com> you write:
>I am a Swiss citizen who worked in the US for 17 years with a Green Card. On
>my retirement and permanent return to Switzerland I abandoned my permanent
>residence status in the US by surrendering my Green Card. Now I get social
>security benefits from the US. This is my question: Is my social security
>payment taxable in the US, I should declare it only in Switzerland for
>taxation?

The SSA has this handy web page:

https://www.ssa.gov/international/AlienTax_reference_2.html

It says that your SS payments will have 25.5% tax withheld unless
there's a lower rate in a tax treaty.

Here's the tax treaty:

https://www.irs.gov/pub/irs-trty/swiss.pdf

To my non-expert eye, Article 19 says that the US tax is limited to
15%.

Dunno whether you are supposed to file a US tax return to report the
tax that's already been withheld, or whether you can credit the US tax
against your Swiss tax.

R's,
John

[ira smilovitz]

On Tuesday, June 7, 2016 at 12:14:18 AM UTC-4, John Levine wrote:
> In article <7d94$5755c219$41b57997$25...@news.flashnewsgroups.com> you write:
> >I am a Swiss citizen who worked in the US for 17 years with a Green Card. On
> >my retirement and permanent return to Switzerland I abandoned my permanent
> >residence status in the US by surrendering my Green Card. Now I get social
> >security benefits from the US. This is my question: Is my social security
> >payment taxable in the US, I should declare it only in Switzerland for
> >taxation?
>
> The SSA has this handy web page:
>
> https://www.ssa.gov/international/AlienTax_reference_2.html
>
> It says that your SS payments will have 25.5% tax withheld unless
> there's a lower rate in a tax treaty.
>
> Here's the tax treaty:
>
> https://www.irs.gov/pub/irs-trty/swiss.pdf
>
> To my non-expert eye, Article 19 says that the US tax is limited to
> 15%.
>
> Dunno whether you are supposed to file a US tax return to report the
> tax that's already been withheld, or whether you can credit the US tax
> against your Swiss tax.

Responding only to this last paragraph since I haven't read the treaty, there would be no need to file a US tax return as the tax withheld would exactly equal the liability. It's analogous to the treatment of withholding on dividends paid by foreign corporations. There is no tax return to file in the foreign country since the withholding equals the liability.

In this case, whether the US SS income would need to be reported on a Swiss income tax return or whether the US tax withheld would generate a credit against Swiss income tax would be a matter for Swiss tax law.

Ira Smilovitz

[Alan]

On 6/6/16 12:13 PM, S. Wesley Ariarajah wrote:
> I am a Swiss citizen who worked in the US for 17 years with a Green
> Card. On
> my retirement and permanent return to Switzerland I abandoned my permanent
> residence status in the US by surrendering my Green Card. Now I get social
> security benefits from the US. This is my question: Is my social security
> payment taxable in the US, I should declare it only in Switzerland for
> taxation?
>

Under normal circumstances, SSA benefits paid to an NRA are treated as
income not effectively connected (NEC) to any trade or business. As
such, 85% of the benefit would be subject to 30% tax. However, under
certain tax treaties it is exempt and under some tax treaties it is
taxed at a different rate.

Article 19 of the US - Swiss Income Tax Treaty says:

"..such payments may also be taxed in the first Contracting State
according to the laws of that State, but the tax so charged shall not
exceed 15 percent of the gross amount of the payment."

Therefore, the normal rate would be 30% times 85% = 25.5% of the gross.
You however, only have to pay 15% of the gross payment.

You will need to complete IRS Form 1040NR to compute your tax. Tax on
NEC income is computed on Schedule NEC of the form. This becomes tricky
when dealing with SSA benefits as the instructions for Line 8 tell you
to only enter 85% of the benefit and then to enter the applicable tax
rate. I have seen NRAs complete this two different ways. 1. Enter the
gross amount rather than 85% in the 15% column or 2. Enter 85% of the
gross benefit in the "Other" column and specify 17.647% as the swiss
rate. I personally prefer Option 1.

You will need to complete the last page of the tax form where you will
explain that you are exercising Article 19 paragraph 4 of the treaty
between the US and Switzerland. You will also apply any tax withheld by
the US against your tax liability to determine your refund.

The treaty allows for Switzerland to also tax your benefit. The treaty
also has an Article designed to avoid double taxation. Article XXIII
paragraph 1(d) says:

"d) Where a resident of Switzerland derives payments that may be taxed
by the United States pursuant to paragraph 4 of Article 19 (Government
Service and Social Security), Switzerland shall provide a relief to such
resident consisting of a deduction equal to the tax levied in the United
States, plus an exemption equal to one-third (1/3) of the net amount of
such payment from Swiss tax."

You would have to exercise that treaty clause on your Swiss income tax
return.