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Are social security benefits taxable to Alien non resident…

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This question is for BarbaraAre...
This question is for BarbaraAre social security benefits taxable to Alien non resident taxpayers? They have abandoned their green card a few years ago and now live overseas. Preparing rental income tax return via 1040NR and don't see where I can enter their social security benefits on the return. No treaty for Alien non resident right? since they do not have to pay for US rental income overseas?
Submitted: 4 months ago.Category: Tax
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Answered in 14 minutes by:
3/20/2018
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 4 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,869
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. My name’s Lane …

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

I’m reading your question now.

Bear with me a moment while I type up my response.

….

Then if you have further questions we can go from there.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 4 months ago

Title 26 requires the Social Security Administration (SSA) to withhold nonresident alien tax from certain Social Security monthly benefits.

...

If one is a nonresident alien receiving retirement, disability or survivors benefits, SSA will withhold a 30 percent flat tax from 85 percent of those benefits unless you qualify for a tax treaty benefit.

...

This results in a withholding of 25.5 percent of the monthly benefit amount.

...

What country are we talking about?

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 4 months ago

The following countries have treaties that exempt them from the Withholding:

Canada

Egypt

Germany

Ireland

Israel

Italy

Japan

Romania

The United Kingdom

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 4 months ago

Special Cases:

...

Switzerland

An income tax treaty between the United States and Switzerland, decreases the rate of nonresident alien tax withholding to 15 percent of the total monthly Social Security benefits paid to residents of Switzerland

...

India

An income tax treaty between the United States and India exempts the portion of your benefits that is based on earnings from U.S. Federal, State or local government employment from nonresident alien tax if you are both a resident and a national of India.

SSA will not withhold the nonresident alien tax from your benefits if your entire benefit is based on earnings from U.S. Federal, State or local government employment.

...

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 4 months ago

Please let me know if you have ANY questions at all, before rating me.

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars on your screen, and then clicking “submit")

That’s the only way JustAnswer.com will credit me for the work.

...

But again, let me know if you need more here,

Lane

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Customer reply replied 4 months ago
It is for Japan and there is no withholding
Im wondering how to report the social security on the tax form for non reaidents
Can I assume we dont have to report it? seems strangeor should I indicate the tax treaty
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 4 months ago

Yes, see this from Article 23: (I'll underline the pertinent part)

...

ARTICLE 23 (Private Pensions and Annuities)

...

(1) Except as provided in Article 21, pensions and annuities paid to an individual who is a resident of a Contracting State shall be taxable only in that Contracting State.

...

(2) The term "pensions", as used in this article, includes periodic payments made after retirement or death in consideration for services rendered, or by way of compensation for injuries received, in connection with past employment, including United States and Japanese social security payments

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Customer reply replied 4 months ago
since they live in Japan the social security is not taxable and can be left off the 1040NR so I just report the rental income only right?
She has been travelling to US as a tourist and has been here more than 183 days which means she can file as a resident. So do we change tax forms depending on how many days she is here? Im clear on resident Social security income just not for 1040NR
Do they need to pay Japan taxes on social security? Doesnt have to be reported anywhere?
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 4 months ago

Of she passes Substantial Presence Test (SPT) that changes everything. That means she's taxed a resident 1040 not 1040 NR

...

The substantial presence test isn't quite as simple as just being present for 183 days.

...

You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least:

  1. 31 days during the current year, and
  2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
    • All the days you were present in the current year, and
    • 1/3 of the days you were present in the first year before the current year, and
    • 1/6 of the days you were present in the second year before the current year.

...

So if she was here for 183 days in 2017 she clearly meets the test, and MUST use the 1040.

...

THen you test the social security taxation the normal way, just as with any other tax resident.

...

Generally, a U.S. tax resident is (1) A U.S. Citizen, a (2) one holding a green card, or .(3) one passing the substantial presence test for the tax year.

...

Here's that test (There's a worksheet in Publication 915 and your software should do this automatically) from SSA:

...

No one pays federal income tax on more than 85 percent of his or her Social Security benefits based on Internal Revenue Service (IRS) rules. If you:

  • file a federal tax return as an "individual" and your combined income * is
    • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
    • more than $34,000, up to 85 percent of your benefits may be taxable.

  • file a joint return, and you and your spouse have a combined income * that is
    • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
    • more than $44,000, up to 85 percent of your benefits may be taxable.

  • are married and file a separate tax return, you probably will pay taxes on your benefits.

Your adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefits
= Your " combined income "

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 4 months ago

Please let me know if you have ANY questions at all, before rating me.

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars on your screen, and then clicking “submit")

That’s the only way JustAnswer.com will credit me for the work.

...

I hope you’ll rate me based on accuracy and thoroughness, rather than any good news / bad news content

But again, let me know if you need more here,

Lane

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Customer reply replied 4 months ago
Im very familiar with social security for residents
But my question is for Japanese non resident aliens who used to have geeen card and worked here and earned social security. If they have given up green card and did not meet the SPT then how and where do I enter their social security on 1040NR tax form
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 4 months ago

I've already answered that, it's taxed by the resident state, as per the tax treaty.

...

It doesn't GO on the NR

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 4 months ago

would appreciate a positive rating June ... Otherwise I'm working for free here.

...

BUT, if more is needed please let me know

,,,

Lane

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Customer reply replied 4 months ago
Im just not clear on the social security
So do we need to report the social security on japanese taxes? only on the years we are considered not to have substantial presence in US? so report on US taxes 1040 when we meet substantial presence test and report on Japan taxes when we dont
I normally did not report it at all but now that we have rental income have to do taxes in US
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 4 months ago

"So do we need to report the social security on japanese taxes? only on the years we are considered not to have substantial presence in US? so report on US taxes 1040 when we meet substantial presence test and report on Japan taxes when we dont"

...

you said that perfectly

...

The treaty has Social Security and other pensions (under the treaty's definition OF pensions) taxed by the resident state.

...

So yes, when they pass substantial presence test US WILL expect the Social Security tax to be paid based on the normal formula for any other tax resident. And that, of course is on the 1040.

...

If they are NOT a U.S. resident they will pay tax on the SOcial Security to Japan, and only report US source income (the rental income) on the 1040 NR.

...

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