I have dual US/Swiss citizenship. I am planning on retiring in Switzerland and I will be eligible for U.S. Social Security benefits. Article 19.4 (Government Service and Social Security) of the Convention Between the United States of America and the Swiss Confederation For the Avoidance of Double Taxation With Respect to Taxes On Income (effective Jan. 1, 1998) reads: 4. Notwithstanding paragraph 2, social security payments and other public pensions paid by a Contracting State to an individual who is a resident of the other Contracting State may be taxed in that other State. However, such payments may also be taxed in the first Contracting State according to the laws of that State, but the tax so charged shall not exceed 15 percent of the gross amount of the payment.
I interpret this to mean that both Switzerland and the US will be able to tax me on my U.S. Social Security benefits, and that the U.S. cannot apply a tax rate greater than 15% to such benefits. Questions:
a) Is my interpretation correct?
b) If so, how do I apply the benefit of the 15% ceiling on my U.S. income tax return? (Form 1040) As far as I can tell, there is no worksheet in the 1040 instructions booklet that addresses this issue when computing the tax on Line 44 of the income tax return. Thanks.
-- tb