The Social Security Withholding Rules for Non-Resident Aliens

The Social Security Withholding Rules for Non-Resident Aliens

Social Security Withholding for Non-Resident Aliens

When a person is no longer considered a US Person for tax purposes, such as a US Citizen, Lawful Permanent Resident, or Foreign National who meets a Substantial Presence Test – they may still be entitled to Social Security benefits even though they are no longer a US person. In other words, if a US person has accrued Social Security benefits but is no longer a US person — they can still receive payments from the United States –– but the IRS tax rules are a little different. Side-stepping any issues involving windfall provisions, from a baseline perspective — Social Security payments to non-residents are taxable (unless an exception or exclusion/limitation exists). This is different than a US person who receives Social Security benefits and which is typically not taxable unless the person has additional income — and then the Social Security Benefits may become taxable.

Tax Rules for Social Security Benefits 

The general rule is that 85% of the Social Security benefits will be taxed at 30% – – resulting in a net effective tax rate of 25.5%.

As provided by the SSA:

• • • If IRS considers you to be a foreign person (or nonresident alien) for tax purposes, SSA is required to withhold a 30 percent flat income tax from 85 percent of your Social Security retirement, survivors, or disability benefits. This results in a withholding of 25.5 percent of your monthly benefit. You may be exempt from this tax (or subject to a lower rate) by treaty. To learn more about nonresident alien tax, you can review U.S. Tax Guide for Aliens (IRS Publication 519) or visit IRS’s website.

Treaty Election or Except May Exempt Taxation

Despite the fact that the general rule is that 85% of the Social Security benefits would be taxable, there are certain exceptions when provided for by Treaty.

As provided by the IRS:

Lawful Permanent Residents

• • • “Lawful permanent residents. For U.S. income tax purposes, lawful permanent residents (green card holders) are considered resident aliens until their lawful permanent resident status under the immigration laws is either taken away or is administratively or judicially determined to have been abandoned. Social security benefits paid to a green card holder are not subject to 30% withholding.

    • If you are a green card holder and tax was withheld in error on your social security benefits because you have a foreign address, the withholding tax is refundable by the Social Security Administration (SSA) or the IRS.

    • The SSA will refund taxes erroneously withheld if the refund can be processed during the same calendar year in which the tax was withheld.

    • If the SSA can’t refund the taxes withheld, you must file a Form 1040 or 1040-SR with the Internal Revenue Service Center, Austin, TX 73301, to determine if you are entitled to a refund.

    • You must also attach the following information to your Form 1040 or 1040-SR. • A copy of the Form SSA-1042S, Social Security Benefit Statement.

      • A copy of the “green card” unless you are a bona fide resident of American Samoa.

      • A signed declaration that includes the following statements: “The SSA should not have withheld federal income tax from my social security benefits because I am a U.S. lawful permanent resident and my green card has been neither revoked nor administratively or judicially determined to have been abandoned. I am filing a U.S. income tax return for the tax year as a resident alien reporting all of my worldwide income. I have not claimed benefits for the tax year under an income tax treaty as a nonresident alien.”

Non-Resident Aliens

• • • • • A nonresident alien is an individual who isn’t a citizen or resident of the United States. If you are a nonresident alien, the rules discussed in this publication don’t apply to you. Instead, 85% of your benefits are taxed at a 30% rate, unless exempt (or subject to a lower rate) by treaty.

        • You will receive a Form SSA-1042S or Form RRB-1042S showing the amount of your benefits. These forms will also show the tax rate and the amount of tax withheld from your benefits.

        • Under tax treaties with the following countries, residents of these countries are exempt from U.S. tax on their benefits.

          • Canada.

          • Egypt.

          • Germany.

          • Ireland.

          • Israel.

          • Italy.

          • Japan.

          • Romania.

          • United Kingdom.

          • Under a treaty with India, benefits paid to individuals who are both residents and nationals of India are exempt from U.S. tax if the benefits are for services performed for the United States, its subdivisions, or local government authorities.

          • If you are a resident of Switzerland, your total benefit amount will be taxed at a 15% rate.

          • For more information on whether you are a nonresident alien, see Pub. 519, U.S. Tax Guide for Aliens. Exemption from withholding.

          • If your social security benefits are exempt from tax because you are a resident of one of the treaty countries listed, the SSA won’t withhold U.S. tax from your benefits.

          • If your railroad retirement benefits are exempt from tax because you are a resident of one of the treaty countries listed, you can claim an exemption from withholding by filing Form RRB-1001 with the RRB. Contact the RRB to get this form.

          • Canadian or German social security benefits paid to U.S. residents. Under income tax treaties with Canada and Germany, social security benefits paid by those countries to U.S. residents are treated for U.S. income tax purposes as if they were paid under the social security legislation of the United States. If you receive social security benefits from Canada or Germany, include them on line 1 of Worksheet 1.

About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

Contact our firm today for assistance.