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My wife, when she emigrated from Switzerland to the USA in

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1976 was allowed to continue...
My wife, when she emigrated from Switzerland to the USA in 1976 was allowed to continue paying into the Swiss Social Security System (AHV). The amount paid was based on our joint income that was primarily from my wages. The payments were either by a check drawn from an American bank account or a transfer from a Swiss bank account. All the money paid in had been “after tax.” There were no contributions by the Swiss government since she had no Swiss earned income from in the years of contribution.
However, she paid a Swiss income tax (really a “wealth tax”) in the years of the Social Security contributions. Part of this wealth tax was also based on my wages.
I am perplexed how the social security payments she received in 2011 should be treated and taxed. Part of the IRS code states that “foreign social security benefits are taxable as annuities (unless they are exempt from US tax or treated as a US Social Security benefit under a treaty)”., Are her social security payments considered an annuity? And if so, what percentage of it is taxable? Is this reported on line 16a of IRS Form 1040?
Or should it be reported on line 21, other income, “Swiss Social Security?” If it is to be reported on line 21, is it taxed as US social security, that is, 15% is not taxed no matter what the income?
Submitted: 5 years ago.Category: Tax
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10/1/2012
Tax Professional: Robin D., Senior Tax Advisor 4 replied 5 years ago
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,886
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D :

Hello and thank you for using Just Answer,

No special double taxation relief rule is required Under Article 19 where Swiss social security benefits are paid to U.S. residents because Switzerland does not tax the benefits when it is the source country.
U.S. residence-basis taxation of Swiss social security benefits is not limited by the Convention between US and Switzerland.
You will treat the payments as annuity payments. The percentage that would be taxable would be based on the amounts contributed while under US taxation.

JACUSTOMER-4a6425xm- :

If I understand you correctly, if the entire amount contributed to the AHV was made while we were subject to US residency and tax laws the entire payment received in any year will be taxable at out regular tax rate?

JACUSTOMER-4a6425xm- :

Robin D :

The payments are treaty as annuity for tax purposes. Any amounts contributed that were made with money that was taxed by the US already can be used as the basis in the annuity. If you contributed after-tax dollars to your pension or annuity, your pension payments are partially taxable. You will not pay tax on the part of the payment that represents a return of the after-tax amount you paid. This amount is your cost in the plan or investment, and includes the amounts your employer contributed that were taxable to you when contributed.
Taxed under either the General Rule or the Simplified Method. You need to use the simplified method because the payments started after 1996.

http://www.irs.gov/taxtopics/tc411.html

Robin D :

Thank you in advance for a positive rating

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