Novel Question on U. S. Pension and Social Security Taxes

Hello Jose,

I am a retired American living in Alicante and can answer some of your questions. First of all, if Trump's tax plan goes through, I have no idea how things may change, but the good news is that there is a tax treaty between Spain and the US, and you won't be double taxed. In my case, I am retired with a private pension and I also have an IRA. I am putting off social security until 72, because I don't need it.

It took me some amount of study to get my taxes done correctly, however. Assumimg that you are living in Spain, Spain is then your tax home. Both countries require you to file and declare worldwide earnings. In my case, my wife is a working Spanish national, and it is in our interest to file separately. She has to file in the US because she has a green  card. Since her Foreign earnings are less than the US limit, we file a 2555-EZ form and she doesn't pay anything in the US. She pays Spanish taxes, of course. In my case, my pension, which is paid by prudential in the US, deducts taxes from my disbursement, but in declaring I compute my tax on worldwide earnings, and since the taxes I pay in Spain are more than I would pay in the US, my US tax burden is 0. You declare on line 48 and use form 1116 on the 1040 form. As an expat you get an automatic 2 month extension from the IRS if you are overseas, which comes in handy since we file in June in Spain. Taxes are sgnificantly higher in Spain than the US (but you get a lot more for your taxes) so it always works out to where we pay 0 to the US. My deductions on my pension are around 12% and for IRA disbursements 25%. Our Spanish taxes filing separately, are around 18-19 %.

If you want more info, send me your email address. I also was inspired by El Cid, especially by Sophia Loren. I have been to the castle where the movie was filmed in Peñiscola. I prepared an American Thanksgiving dinner for friends here in Alicante last Saturday, and was asked what I was thankful for. I told my guests, "Living in Spain and not having to live in Trump's America.

Carl

Hi Carl:

Thanks so much for taking the time to provide such a detailed response to my questions on the taxes I would incur on my pension and ss benefits as an expat U. S. green card holder.  (Amusing comment about Sophia, who really was at the height of her beauty in El Cid!-I'm considering a trip in the spring that includes a visit to the castle in Peñiscola, BTW.)  Also, believe me when I say I feel your comment about Trump's America!

I do have one follow-up question though.  When you say "your deductions" for your pension are around 12% and for your IRA around 25% are you referring to the tax rate imposed on them?  If so, wonder why they're taxed at different rates (pretty sure from my research the effective rate on both my pension and ss benefits as an expat green card holder would be 25.5%-which may be different from what you pay as an expat U. S. citizen).

Thanks again!!

By deductions, I mean what the entity, in this case Prudential or Fidelity takes out of my dibursement, NOT what I am taxed. For example, if I withdraw $20,000 from my IRA, i get $16,000, and $4000 is held back by the government. After I file my returns and pay my Spanish taxes, then I get a refund from the US for the $4000.

Carl,

Thanks for the clarification.  Your information will certainly assist me in deciding whether to move to Spain or remaining here, as distasteful as that prospect may be, although things are looking up today!

Take care

Jose

Question:  I will be in Spain on a 12 month non lucrative visa.  Arriving the first week of March of 2018 and returning to the US by month end February 2019.  Am I responsible for paying Spain taxes on my Pension payments and 401K distributions during this time period?  If so, When would I need to file?  As the Spain tax rate is higher I presume it might be advantageous to get my 401K distribution processed before I leave for Spain as that income would have been realized before I resided in Spain and then would not be subject to Doain taxes, does that make sense?  I was really hoping that as a non lucrative visa holder / non permanent resident I wouldn’t have to concern myself with Spain income taxes, but I’m getting the impression that I will.

Tax declarations in Spain are made in May/June in the year following the income received . Thus for you it would be in 2019.

If you leave in March with no intention of returning then probably if you did not file, even if Hacienda discovered that, then they would not have jurisdiction in USA to enforce the rule


NB I assume you have studied the Double Taxation Agreement between Spain and USU

Thanks for the info.  I presume maybe you meant 2019?   Year following income received.

Yes sorry should have been 2019.   I asked the moderators to edit it when noticed but I guess they have not gotten around to it yet

@ Johncar > Your post has been edited as requested.

Carl,

I am an American planning on retiring to Spain with my Spanish wife and our teenager kid, and have a few questions about taxes. The information I have gathered so far from the internet is that the only deduction one can make for tax purposes is the personal allowance set at 5151 Euros for adults and 1836 Euros for the first kid.  Similarly to you, our initial income would consist of a pension and an IRA, and subsequently social security. The questions are:
1) Based on your experience with Hacienda, are there any other deductions one can make?
2) Are the tax brackets the same for retirees, like yourself, and for other people?
3) Do you do your own taxes? if not, is there a way to get the contact information of your tax preparer to get in contact directly with him to discuss the matter? Thanks.

Jose

Carl,

I was reading your post and I would like to ask you your opinion. My name is Manuel I am from Santiago de Compostela, Spain. Living in the USA since February 1996. My wife is from Miami. I am full legal permanent resident (green card).

We are getting divorce, so I think I will need to move back to Spain.

Anyways, here are the two questions I would like to ask you:

1- Should I became an American or just renounce to my green card? The problem with this is my S.   security pension will be reduced in 30% if I am not a resident or a US citizen.

2- If I become a US citizen I am afraid of the double taxation. How is it working for you? I will have my 401k distributions and my S. Security pension plus some savings in the bank.

I was researching online and in some places I had red that S.S pension and private pensions are not taxable in Spain because of the treaty between both countries.

I would love to hear from you, when you have the chance. I am putting my email below to have this conversation privately .

***

Thanks,

Manuel

Jose,

Sorry, I didn't answer this post. I wasn't aware of it until I received the following post. I hope that you were able to find answers to your questions. As for Spanish taxes (hacienda) my wife and I have an accountant do our taxes. My wife claims our son on her return, but doesn't know the amount of the deduction. She says the tax is only dependent upon income, and is not lower for retirees. I am not sure of what other deductions are available in Spanish taxes. Since my previous response, I do have the BOE which covers how pensions are taxed under the tax treaty, dated 2018. It states effectively that
Foreign private pensions and disbursements are taxable in Spain for Spanish residents, while government pensions (social security) is taxable in the country from which the pension originates. Our accountant is Emi Miralles at
Emiliamiralles(at)masterquater.com in Alicante.

Manual,

Sent the Spanish BOE regarding the treaty on double taxation to your email. Hope that helps.

Thanks a lot

Claxnes,

How complicated is to file USA income tax from Spain? I think to protect my USA S.S. pension it will be better if I become a US citizen.

If I do this way I will only file taxes in Spain for the 401k contributions and the S.Security pension from USA will pay taxes at the IRS. Am I right? And also how difficult is to file the income tax for the IRS from Spain?

I am learning a lot of things, bu I realized I  didn't know very much about this.

Thanks for your help,

Manuel

Sorry distributions for the 401k.

Claxnes my email is ***

Not difficult. Download IRS forms on your computer. File as you would in the US. I file the 1040 long form. Print the forms out, sign, and return through Spanish mail. Overseas filers send to a special address. The IRS also gives overseas filers an automatic 3 month extension. You will need to file in Spain first so you know what your Spanish taxes are which are used in filing to the IRS. Spanish taxes are filed at the end of June and we have a Spanish accountant do our filing, which for me is about 100 euros. I usually ask for a 6 month extension to give me plenty of time to file to file with the IRS.

Yes, according to the 1990 BOE. I will try to confirm that no changes have occurred due to Trumptax.

I really appreciate the help. I just hope no to pay that much in taxes. two income taxes, one in Spain and one in USA makes me nervous.

Let's see. I still have time to plan everything with calm.

Un abrazo,

Manuel