Taxes on US Social Secuity income for a Swiss Citizen

In article you write:

The SSA has this handy web page:

It says that your SS payments will have 25.5% tax withheld unless there's a lower rate in a tax treaty.

Here's the tax treaty:

To my non-expert eye, Article 19 says that the US tax is limited to

15%.

Dunno whether you are supposed to file a US tax return to report the tax that's already been withheld, or whether you can credit the US tax against your Swiss tax.

R's, John

Responding only to this last paragraph since I haven't read the treaty, there would be no need to file a US tax return as the tax withheld would exactly equal the liability. It's analogous to the treatment of withholding on dividends paid by foreign corporations. There is no tax return to file in the foreign country since the withholding equals the liability.

In this case, whether the US SS income would need to be reported on a Swiss income tax return or whether the US tax withheld would generate a credit against Swiss income tax would be a matter for Swiss tax law.

Ira Smilovitz

Under normal circumstances, SSA benefits paid to an NRA are treated as "..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."

Therefore, the normal rate would be 30% times 85% = 25.5% of the gross. You however, only have to pay 15% of the gross payment.

You will need to complete IRS Form 1040NR to compute your tax. Tax on NEC income is computed on Schedule NEC of the form. This becomes tricky when dealing with SSA benefits as the instructions for Line 8 tell you to only enter 85% of the benefit and then to enter the applicable tax rate. I have seen NRAs complete this two different ways. 1. Enter the gross amount rather than 85% in the 15% column or 2. Enter 85% of the gross benefit in the "Other" column and specify 17.647% as the swiss rate. I personally prefer Option 1.

You will need to complete the last page of the tax form where you will expla "d) Where a resident of Switzerland derives payments that may be taxed by the United States pursuant to paragraph 4 of Article 19 (Government Service and Social Security), Switzerland shall provide a relief to such resident consisting of a deduction equal to the tax levied in the United States, plus an exemption equal to one-third (1/3) of the net amount of such payment from Swiss tax."

You would have to exercise that treaty clause on your Swiss income tax return.