Expat Retirement: Key Tax Facts for Social Security

Expat Retirement: Key Tax Facts for Social Security
Updated on April 25, 2024

If you are planning to retire abroad, there are many factors that may influence your decision as to where you go. Weather, healthcare, culture and cost of living are always significant factors. But what about the impact on tax for expat retirees? This needs to be considered, as high tax rates or lack of reciprocal agreements with the US can be costly. One of the most important considerations for retirees is their Social Security payments. For many, this will be the only source of income so it is critical that you are able to easily receive your payments. Thankfully, for most retirees, receiving benefits will not be an issue. The following information is for US citizens and Resident Aliens receiving benefits from their own work. This information may be different for dependent and survivor beneficiary benefits.

Where Should I Retire?

If you choose to retire to a foreign country and live off your retirement benefits, including US Social Security benefits, there are some important things to consider when it comes to tax for expat retirees.
Where you retire should be your first consideration. Most countries are Social Security “friendly” but there are a few where you cannot receive benefits while you are living there. These countries are generally countries that have sanctions imposed on them by the US Government. These are the current countries where you cannot receive US Social Security payments:

  • Cuba
  • North Korea

The US Treasury Department will withhold payments as long as you are a resident of these countries. Once you return to the United States, or a country where payments are not prohibited, you will receive these held payments in full.

There are other countries where there are restrictions on your payments, but there are exceptions to the rule. One of the conditions of payment to these countries is that you must appear in person each month at the US Embassy to receive your benefit payment.

Here is a list of countries where you must meet certain conditions to receive US Social Security benefit payments:
Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.

If you do not receive your benefits while you are a resident of one of these countries, the US Treasury will send all the withheld payments you were eligible for once you leave the restricted country and move to one where you can receive payment.

What Exactly Does it Mean to Be ‘Outside the United States’?

The US Treasury Department considers you to be “outside the United States” when you are not in one of the 50 states, District of Columbia, Puerto Rico, or any other US territory. Once you have been outside the United States for at least 30 days in a row, you are considered to be outside the country. Once you return to the United States for at least 30 consecutive days, you will be considered returned, and can begin drawing any withheld benefits.

How Do I Receive My Benefits?

As long as you live within a country where there are no restrictions on your payments, you can receive your payments in a variety of ways.

Paper Check – This is the most traditional way to receive your benefits. If you live in a country without a reliable postal service, you should consider a different means of payment. Cashing a US Treasury check may also give you some issues with your local bank. These checks are often required to be verified by the Treasury Department, which entails them to be mailed back to the United States, verified, and mailed back to your bank. This process can take weeks to complete, putting your funds in limbo until it is complete.

Additionally with a paper check, you run the risk of your check getting lost or stolen. The US Social Security Administration can replace a lost or stolen check, but this takes time.

Electronic Payments – This is the fastest and easiest way to get your benefits. You can sign up to get electronic payments when you first apply for Social Security benefits, or later after you begin receiving your benefits.

With electronic payments, your payments are faster (from 1-3 weeks faster) and you can avoid check cashing fees and currency conversion fees.

You can get your payments electronically directly deposited to any US financial institution while you are in any country. The exception to this would be if you are living in a country where you cannot receive payments (see above). When you directly deposit to a bank account in the United States, you may incur wire transfer charges when you transfer the money to your foreign bank account.

There are many countries with an international direct deposit agreement with the United States. This agreement allows the transfer and foreign currency conversion of US Social Security benefits to a foreign bank free of most charges. The Social Security Administration covers the cost of the fees.

To sign up for direct deposit of your benefits, you should contact the Social Security Administration either through mail or at your local embassy.

The Social Security Administration also has a debit card that you can sign up for where you can get your payments deposited into. This card is called Direct Express, and you can use it to make purchases, pay bills, or withdraw cash. You can sign up for this card at USDirectExpress.com or through the Social Security Administration.

Will My Benefits Be Taxed?

The United States will tax your benefits on your US tax return if you are receiving income from another source in addition to Social Security. If this occurs, the benefits are taxed the same way they would be if you were residing in the United States. Your benefits can be excluded from your income in some countries, provided they have an agreement or provision in their tax treaty with the United States. If your benefits are taxable in a foreign country, you may be able to take a credit of the foreign taxes you pay on your US tax return to help offset your US taxes.

Need More Information About US Tax for Expat Retirees?

Our team of dedicated CPAs and IRS Enrolled Agents are here to help you navigate the expat tax process, so contact us today with your questions about tax for expat retirees!

Who doesn’t love a tax break? Use our handy calculator to learn what you can save using the FEIE.

Use our simple excel calculator to get an estimate of how the foreign earned income exclusion will save you money. It will make your day!

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