How do you exclude Social Security from a foreign country (under a Tax Treaty) on the Form 1040? Do you include on line 5b and then deduct on line 7a for a U.S. Citizen living in that foreign country?
Does the same treatment apply for the above scenario but the U.S. Citizen is getting Social Security and living in the U.S.?
In both instances the Social Security is for work performed.
Thank you for your response. I very much appreciate your help.
Not sure you have seen my second post yesterday or whether your reply is for both.
I do think and know that the social security earned in Greece is taxed correctly by the Greek Government and in accordance with the Social Security Administration's agreement with Greece.
Both are reported under Social Security on the 1040.
According to Article XI of the Treaty and paragraph 1 it states that it is EXEMPT from taxation by the other country (not that credit is given) by the other country. Somewhere in the front part of the Treaty is says that the treatment is reciptrocal.
I know that you are very familiar with foreign taxation but my confusion was why residing in Greece if you are a U.S. person you would exempt the soc. sec. income and if you live in the U.S. you could not and would need to use Form 1116 for a tax credit.
Additionally, you mentioned Article XIV which deals with the Tax Credit. This means all other income taxes posed. And in my humble opinion (and after one week of research) I would think this corresponds to Article 2477 mentioned in the U.S. Master Tax Guide under Creditable Foreign Taxes.
The second paragraph dealing with this says "no credit or deduction is allowed for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement" (which Greece has).
All this has got me mystified and baffled.
Have a good day!
Glad to be of help, @Shorebird.
My response was to both of your posts.
Income tax treaties are always reciprocal but it does not mean they assign equal right to both countries to tax different classes of income.
If you refer to Article XI(1), Greece is assigned the primary right to tax Greek social security benefits regardless of the residency of the recipient. It makes no difference whether the recipient resides in the US or Greece. While the same income could have been exempted from US tax, that's nullified by the Saving Clause in Article XIV(1) by virtue of the taxpayer being a US citizen. The US, however, will allow FTC to be claimed for taxes paid to Greece.
Since Greece has the primary right to tax the social security benefits it pays, it is not in breach of the income tax treaty. Totalization agreement serves a different purpose. It only dictates how contributions and benefits are coordinated between the two treaty countries, not how those benefits are subject to tax.
As for the article you cited from the Master Tax Guide, you have read it wrong. That article refers to whether social security taxes paid to a foreign country is creditable for purposes of FTC, not foreign taxes paid on social security benefits paid by a treaty partner. In any case, what you have with Greece is unusual in modern times. The only reason why you are in this dilemma is because this is an antiquated treaty.
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