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According to The Wall Street Journal, nearly 1,800 Americans renounced their citizenship in 2011, many of them for tax reasons. The decision to give up citizenship involves a host of considerations, not least of which is whether you'll be able to receive your Social Security retirement benefits. In most cases, the answer is yes -- but you face several complicating factors.
You don't earn Social Security benefits simply by being a U.S. citizen -- you must legally work and pay Social Security taxes in the United States. If you legally worked and paid taxes in the U.S. for long enough -- in most cases, 10 years -- you're entitled to Social Security retirement benefits. That's true whether you're a U.S. citizen, a non-citizen or a former citizen. However, non-citizens may be subject to substantial taxes on their benefits, depending on where they live.
Resident vs. Non-Resident
Americans who renounce their citizenship are treated just like any other alien, the term the government uses for non-U.S. citizens. You're either a "resident alien" or a "non-resident alien." To be a resident alien, you must either have legal permanent resident status -- also known as a "green card" -- or you must have a "substantial presence" in the United States. In general, that means you're in the country for at least 31 days a year, or for six months in a three-year period. But even if you meet this test, the government may still declare you a non-resident alien if it determines that you have a closer connection to a foreign country than to the U.S.
The rules for resident aliens receiving benefits are essentially the same as for U.S. citizens: If Social Security is your only income, you won't owe taxes, but some of your benefits may be taxed if you have other income. For non-residents, though, it depends on where you live. The Social Security Administration will withhold a "non-resident alien tax" that amounts to 25.5 percent of your benefits unless you live in a country with a tax treaty with the United States. No taxes will be taken out of your benefits if you live in Canada, Egypt, Germany, Ireland, Israel, Italy, Japan, Romania or the United Kingdom. If you live in Switzerland, only 15 percent will be taken out for taxes. And if you live in India, you will not have to pay taxes on any portion of your benefits earned while working in a government job in the U.S.
Social Security sends payments to non-resident aliens in most countries. It's barred by law, however, from sending payments to Cuba or North Korea. Further, non-resident aliens can't receive benefits for any time they spend in either of those countries. That means that if you spend, say, two months in Cuba, then you'll lose two month's worth of benefits. The Social Security Administration also won't send payments to non-resident aliens living in Vietnam, Cambodia or any part of the former Soviet Union except Russia, Armenia, Estonia, Latvia or Lithuania. However, you can apply to pick up your benefit payments at the U.S. Embassy in these countries, or you can collect your accumulated unpaid benefits after you leave.
- The Wall Street Journal: Should You Renounce Your U.S. Citizenship?
- Social Security Administration: Your Payments While You Are Outside The United States
- Internal Revenue Service: Publication 519 - U.S. Tax Guide for Aliens
- American Citizens Abroad: Social Security Payments After Renunciation of U.S. Citizenship
- Social Security Administration: How You Earn Credits
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