Taxation of Foreign Social Security Benefits

I am trying to understand how U.S. tax laws work with regards to foreign social security benefits. I am not a tax professional, so please excuse any possible omission of details. Please let me know what other information is needed, if any.
These are the facts: I am a U.S. citizen residing in Texas for the past 30+ years and working in the USA for a U.S. company. I have dual US/Swiss citizenship. For the past 30+ years I have contributed into the U.S. Social Security System; at the same time I have (voluntarily!) also contributed into the Swiss Social Security System.
In essence, I have made _full_ social security contributions to the retirement systems of two different countries based on my U.S. earned income for the past 30+ years.
I was taking a look at art. 19.4 of the tax convention between the USA and Switzerland for the avoidance of double taxation which basically says that Swiss Social Security benefits are taxed by the U.S. government (I reside in the USA) and also by Switzerland (max. tax rate of 15%).
So, once I will start receiving Social Security benefits from both countries, will I combine both payments, report the total on line 20a of my 1040, complete the Social Security Benefits Worksheet for line 20b, and then take a foreign tax credit?
Is that how it will work?
Reply to
tb
No. That is not how it will work. Your payments from the Swiss system are not US social security benefits and the treaty does not provide a clause that allows you to treat them as US social security benefits for tax purposes. See the treaty with Canada and Germany that does allow a US resident/citizen to treat those country's benefits as US social security. These are payments are coming from a nonqualified plan. You may not add those payments to your US social security benefits. Therefore, you must treat those payments as other income for US tax purposes (Line 21 of the Form 1040). If Switzerland taxes those payments (note that the treaty allows Switzerland to tax them but does not say whether they are taxed) then you would be able to either deduct those Swiss taxes on Form 1040 Schedule A or compute a foreign tax credit on Form 1116 to avoid double taxation.
Over and above the previous paragraph there is another issue as you appear to have been employed in the US while either a US citizen or resident of the US. You state that you were making contributions to the Swiss plan. If you were employed in the US by a Swiss employer who was making employer contributions on your behalf to the Swiss plan, then those amounts should have been included on your W-2 as wages. If they weren't, then you were obligated to report them as taxable gross income on your tax return.
Assuming that there is no issue with employer contributions, the next question to ask is whether you have a cost basis in the Swiss plan. It is a nonqualified plan. Assuming that your earnings used as the basis for your contribution were US sourced and taxed, it is my opinion that you created a cost basis in the plan with these after-tax contributions. The rules in Internal Revenue Code Section 72 would be applicable. If you can substantiate the amount of your employee contributions to the Swiss plan, you can use the General Rule (See IRS Pub 939) to compute the amount of each periodic payment that can be excluded from US tax.
Reply to
Alan
Thanks, Alan. There is no issue whatsoever with a Swiss employer. I made the contributions to the Swiss Social Security System on a voluntary basis with money earned from a job located in the USA. I'll get Publication 939.
Reply to
tb
Where would I find currency conversion tables for the 80s and 90s? I tried Yahoo!Finance but their currency converter gets stuck on loading whenever I select a date that far back.
Reply to
tb

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