# Social Security Benefits - Taxed or Not Taxed in Spain?



## meatball2018 (Nov 8, 2018)

OMG....this has been the most frustrating thing, getting a straight answer to this seemingly simple question!! I sure hope someone here can help!! I'm a single male, born and raised American, soon to be 69 years old. I will retire in the spring of 2019. For about five years I've been casually planning to retire to the south coast of Spain. Now I discover that I need to find out whether it'll be affordable, from a taxation point-of-view. I will NOT be working during my retirement, and I will NOT be owning any property, anywhere. I have several hundred thousand dollars in cash accounts and investments, and will NOT be taking any of this money as withdrawals until early in 2021. I intend to live on my Social Security exclusively until I need to start taking the "Required Minimum Distributions" from my investment portfolio. My Social Security checks will be in the neighborhood of $2800 a month. My question? Will Spain tax my Social Security income? 
SOMEONE PLEASE HELP!! I keep hitting brick wall after brick wall trying to find the answer to this!!


----------



## VFR (Dec 23, 2009)

Yes you will be taxed, how much ............ ?


----------



## mtantill (Aug 20, 2013)

meatball2018 said:


> OMG....this has been the most frustrating thing, getting a straight answer to this seemingly simple question!! I sure hope someone here can help!! I'm a single male, born and raised American, soon to be 69 years old. I will retire in the spring of 2019. For about five years I've been casually planning to retire to the south coast of Spain. Now I discover that I need to find out whether it'll be affordable, from a taxation point-of-view. I will NOT be working during my retirement, and I will NOT be owning any property, anywhere. I have several hundred thousand dollars in cash accounts and investments, and will NOT be taking any of this money as withdrawals until early in 2021. I intend to live on my Social Security exclusively until I need to start taking the "Required Minimum Distributions" from my investment portfolio. My Social Security checks will be in the neighborhood of $2800 a month. My question? Will Spain tax my Social Security income?
> SOMEONE PLEASE HELP!! I keep hitting brick wall after brick wall trying to find the answer to this!!


You will be taxed progressively starting at least 21% (this is the number that is tricky to find out). There is 100% certainty you will be taxed if you are a resident in Spain past 183 days. Because you do not plan to draw monies from you other accounts until 2021, you might consider moving to Spain after July 2 of any year so you can put of the tax residency status an extra year (Spain taxes Jan1-Dec31). At the same time, you might consider whatever other financial moves you might make and do them before the status to avoid additional capital gains in Spain (caveat: this is my understanding and I am not a financial professional in any way, so please do more research on this one). 
As a final note, some ex-pats choose to do 180 days in Spain and rest out of Spain to avoid this dilemma. If this is an option, it might be worth considering.
Hope this helps.


----------



## Lynn R (Feb 21, 2014)

mtantill said:


> You will be taxed progressively starting at least 21% (this is the number that is tricky to find out). There is 100% certainty you will be taxed if you are a resident in Spain past 183 days. Because you do not plan to draw monies from you other accounts until 2021, you might consider moving to Spain after July 2 of any year so you can put of the tax residency status an extra year (Spain taxes Jan1-Dec31). At the same time, you might consider whatever other financial moves you might make and do them before the status to avoid additional capital gains in Spain (caveat: this is my understanding and I am not a financial professional in any way, so please do more research on this one).
> As a final note, some ex-pats choose to do 180 days in Spain and rest out of Spain to avoid this dilemma. If this is an option, it might be worth considering.
> Hope this helps.


Why starting at at least 21%? The starting rate of income tax in Spain (which includes pension income, so I don't know why US social security benefits would not be treated the same) is 19%. The OP can see the sliding scale of income tax rates here:-

https://www.spainaccountants.com/tax-rates


----------



## Lynn R (Feb 21, 2014)

As the OP is over 65 years old he will have a personal allowance of €6,700 plus the general allowance of €2,000.

https://www.spainaccountants.com/income-tax


----------



## Tortuga Torta (Jan 23, 2016)

meatball2018 said:


> OMG....this has been the most frustrating thing, getting a straight answer to this seemingly simple question!!


For what it's worth, that sounds like everything I read online about finding out tax law in Spain (and I have been looking into similar issues myself; despite my flair, I am not yet in Spain but had to put something.).



> I intend to live on my Social Security exclusively until I need to start taking the "Required Minimum Distributions" from my investment portfolio. My Social Security checks will be in the neighborhood of $2800 a month. My question? Will Spain tax my Social Security income?


I'm under the impression that it would be, though there is one (what I believe is) inaccurate web page out there that says it's not. Here is the only mention of social security benefits in the U.S-Spain tax treaty (1990):

(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.​
Here, "may be taxed" should not be taken to mean "may only be taxed" because when the treaty wants to indicate only, it always uses the word "only". I think what this is saying is that it can be taxed by the paying country even if you aren't living in that country. 

Also, have you also looked into whether your required minimum distributions would also be taxed? Because I'm under the impression they would be--even if they were Roth. I'm trying to plan things out myself for down the road.


----------



## mtantill (Aug 20, 2013)

Lynn R said:


> Why starting at at least 21%? The starting rate of income tax in Spain (which includes pension income, so I don't know why US social security benefits would not be treated the same) is 19%. The OP can see the sliding scale of income tax rates here:-
> 
> https://www.spainaccountants.com/tax-rates


Thanks for the correction - glanced too quickly.


----------



## lorort (Dec 24, 2015)

On the irs.gov website they mention Double Taxation Treaty with Spain. In Article 20 it states that Social Security and pensions will be taxed in the contracting state. My understanding of this article is that it will not be taxed twice (US and Spain). I'm attaching it here for others to comment or clarify.[URL=http://www.irs.gov/pub/irs-trty/spain.pdf


----------



## mtantill (Aug 20, 2013)

I found this elsewhere (summarizing). It agrees that Social Security benefits will be taxed only in US while IRA and other investments will be subject to tax in both places (with credits in Spain for taxes in US).

Summarized from JustAwser


ARTICLE 20
Pensions, Annuities, Alimony, and Child Support
1. Subject to the provisions of Article 21 (Government Service):
(a) pensions and other similar remuneration derived and beneficially owned by a
resident of a Contracting State in consideration of past employment shall be taxable only in that State; and

(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.

2. Annuities derived and beneficially owned by a resident of a Contracting State shall be taxable
only in that State. The term "[email protected] as used in this paragraph means a stated sum paid periodically at
stated times during a specific time period, under an obligation to make the payments in return for
adequate and full consideration (other than services rendered).

Your SS would not be taxable to Spain by the treaty provision but any IRA I believe falls under the Annuity provision.
Spain would allow a tax credit though (as a resident) for any US tax you pay on the IRA distributions.

ARTICLE 24
Relief from Double Taxation
1. In Spain, double taxation will be avoided, in accordance with the relevant provisions of the law of
Spain, as follows:
(a) 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.
Such deduction shall not, however, exceed that part of the income tax, as computed before the
deduction is given, which is attributable to the income derived from the United States.

You would need to report your tax position in Spain because you will be a tax resident. If the Spain tax is higher you will owe tax in Spain on the difference in US tax and the Spain tax. Residents pay wealth tax on their worldwide assets but have quite generous tax-free allowances, whereas non-residents are only liable on net assets within Spain but miss out on some of the allowances.


----------



## John98103 (Nov 12, 2015)

My understanding is that Spain taxes your worldwide income - including social security, pensions and capital gains - everything.
The amount owed to Spain is deducted from what you owe in your US federal return, so your net tax due is one subtracted from the other - and in some/many cases it would be 'zero'.
Is that not the case?


----------



## Elyles (Aug 30, 2012)

mtantill said:


> I found this elsewhere (summarizing). It agrees that Social Security benefits will be taxed only in US while IRA and other investments will be subject to tax in both places (with credits in Spain for taxes in US).
> 
> Summarized from JustAwser
> 
> ...




If you pay taxes on your SS income stateside then file form 8802 to receive a tax residency certificate from the US, you will owe NO Spanish income tax on that income. We have worked with Hacienda in our region a few years back and this was determined.


Sent from my iPad using Tapatalk


----------



## mtantill (Aug 20, 2013)

Elyles said:


> If you pay taxes on your SS income stateside then file form 8802 to receive a tax residency certificate from the US, you will owe NO Spanish income tax on that income. We have worked with Hacienda in our region a few years back and this was determined.
> 
> 
> Sent from my iPad using Tapatalk


Thanks! I was hoping you would weigh in. The confusion for me is the way all the other assets are claimed tax-wise. Roth IRA, not taxed in US, but taxable in Spain. For distributions of traditional IRAs, we will get taxed in US first, does this mean it will be treated the same way as SS and I just file form 8802? It seems like it should, but because this is also part of the worldwide wealth, it is not clear to me how this gets handled. Presumably I don't pay tax twice on same income and the tax I pay in US is used to write down what is owed to Spain (which "may" make it zero depending on circumstances). From what i am reading, SS is special in that it is not subject to tax in Spain at all and is not part of the wealth calculation, but I am not completely certain on this point either.


----------



## Elyles (Aug 30, 2012)

mtantill said:


> Thanks! I was hoping you would weigh in. The confusion for me is the way all the other assets are claimed tax-wise. Roth IRA, not taxed in US, but taxable in Spain. For distributions of traditional IRAs, we will get taxed in US first, does this mean it will be treated the same way as SS and I just file form 8802? It seems like it should, but because this is also part of the worldwide wealth, it is not clear to me how this gets handled. Presumably I don't pay tax twice on same income and the tax I pay in US is used to write down what is owed to Spain (which "may" make it zero depending on circumstances). From what i am reading, SS is special in that it is not subject to tax in Spain at all and is not part of the wealth calculation, but I am not completely certain on this point either.




I have no idea if it is special or not. I do however realize that due to being tax residents in the US from the yearly filing of form 8802 with the IRS, we have little orno tax obligation in Spain due to the Tax Treaty. The form was made specifically for the Tax treaties with other countries. Spain is listed on the form. 

My wife, an economist, and her best friend, an asesora here worked with Hacienda a few years back to get to the bottom of this. Our tax situation is simple now. Not everyone’s is so


Sent from my iPad using Tapatalk


----------



## Tortuga Torta (Jan 23, 2016)

Elyles said:


> If you pay taxes on your SS income stateside then file form 8802 to receive a tax residency certificate from the US, you will owe NO Spanish income tax on that income. We have worked with Hacienda in our region a few years back and this was determined.


Social security benefits in the U.S. only start getting taxed after a certain income level. So, do you know what happens for a couple that received social security benefits but, due to the total income being under that threshold, has no tax obligation to the U.S. on those benefits? 

Example: 


Couple takes $20k in income from capital gains or IRA distribution.
Couple also makes $24k from Social Security benefits.
"Provisional income" here is $20k + (1/2 * 24k) = $32k.
$32k is the ceiling for no taxation of social security benefits.
Therefore, the couple pays no tax on these social security benefits.
So: Do they pay taxes on it to Spain? 

And then there is the case where they make a little more, like $22k and $25k. Now they will have to pay a small amount of tax on social security benefits. Does that mean they don't pay to Spain at all, or do they pay some?


----------

