# Social Security Spain and U.S. Treaty



## crisvic (Jan 25, 2020)

Good afternoon.. Would appreciate your opinion, comments on the following. Retired U.S citizen living in Spain has been filing in Spain and the U.S both Social Security monthly pensions, 15000euros Spain and 10500 converted to euros, U.S. In Spain he pays around 3000,--euros. In the U.S. he always used the Foreign tax credit for the 3000euros, converted to $, and ends up paying 400-500$. Is he doing it right, or is there another way...I understand there is a tax treaty Spain-U.S, that excludes S.S. to avoid double taxation. Thanks so very much.


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## Bevdeforges (Nov 16, 2007)

It depends a bit on your filing status. If you're filing as single or jointly with a US citizen/taxpayer spouse you should be using the Social Security worksheet to determine what portion of your US SS is taxable. Depending on what other income you have US SS could be tax free or only taxable up to a maximum of 85% of the gross amount.

If the person is filing their US return as "married filing separately" (if, say, he is married to a Spanish citizen or other foreigner with no US tax obligation) then 85% of the US SS pension is taxable in the US, no questions asked. 

You may want to take a look at IRS Publication 915 for the taxation of US Social Security benefits by the US.


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## Moulard (Feb 3, 2017)

The short version of the answer is that yes, you appear to be doing it right, however if Spanish Taxes on Spanish Social Security are lower than US tax rates, then Yes, you can end up owning money.

Fundamentally the limitations in the elimination of double taxation clauses in the treaty mean than you always end up paying the higher of the two tax rates for most types of income.


The long version that takes you through the treaty from first principles....

Under Article 20 Paragraph 1(b)



> social security benefits paid by a Contracting State to a resident of the other Contracting State or a citizen of the United States may be taxed in the first-mentioned State.


This is pretty common for treaties... it makes them taxable only in the country that pays them to allow them to recover those funds.

HOWEVER, what appears to be unusual in the US-Spain treaty is this paragraph is missing from the savings clause.

This effectively means that both countries can tax their residents and citizens as if the treaty was not in effect.
As you rightly point out, this means you need to rely on the relief from double taxation clauses.

Article 24 covers relief from double taxation 

Paragraph 1(a) covers one direction.



> Where a resident of Spain derives income which, in accordance with the provisions of this Convention, may be taxed in the United States, other than solely by reason of citizenship,Spain shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax actually paid in the United States.


Short Interpretation: Spain will give you a tax credit for US taxes paid on US Social Security Pension

Long Interpretation: Spain will allow to a resident of Spain as a deduction against Spanish tax on income (i.e., as a credit) the appropriate amount of income tax actually paid to the United States. The amount of credit for U.S. taxes granted under the Convention is explicitly limited to that part of the income tax computed in Spain, before the paragraph 1(a) credit is granted, which is attributable to the income derived from the United States. 

Paragraph 2a covers the other direction



> 2. In accordance with the provisions and subject to the limitations of the law of the United States (asit may be amended from time to time without changing the general principle thereof), the United States shall allow to a resident or citizen of the United States as a credit against the United States tax on income
> 
> (a) the income tax paid to Spain by or on behalf of such citizen or resident;


Short Interpretation: The US will give you a tax credit for Spanish Taxes paid on Spanish Social Security Pension

Long Interpretation: Paragraph 2 provides that, subject to the provisions and limitations of U.S. law, the United States shall grant a foreign tax credit for the appropriate amount of income taxes paid or accrued to Spain for Spanish taxes imposed on a recipient of income arising in Spain.

The limitation of US law in this instance, is that the US will only allow you a credit up to the amount of foreign tax paid or accrued. This means that if US taxes are higher than Spanish taxes you can in fact end up in the circumstance where you owe the difference between US and Spanish taxes to the US.


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## crisvic (Jan 25, 2020)

Thanks so much,,


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