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Can you collect US Social Security if you live overseas?

Can you collect US Social Security if you live overseas?

Retiring overseas is a dream shared by millions of Americans, and a dream that more and more folks are realizing.

Affordable healthcare, a better climate or quality of live, and a sense of adventure are often the main drivers for a big late life move overseas. Communities of expat retirees have appeared in Mexico, Costa Rica, Canada, the Philippines, Ecuador, and in Europe, too, so expat retirees can join a community of like minded Americans, too.

It’s important for Americans who retire abroad to understand the US tax implications of moving abroad though, including whether they can collect US Social Security overseas, and how it will be taxed.

The US taxes based on citizenship, so Americans who live abroad are still liable to file US taxes unless they renounce their US citizenship (which is an expensive and complex process in itself).

Accodrding to Bright!Tax, the best online US tax filing service for expats, there are provisions (such as the US Foreign Tax Credit) that help Americans living overseas to avoid double taxation if they move to a country which will also tax their retirement income. Some countries for example only tax income sourced or paid in that country, while some tax residents’ worldwide income. Americans thinking about retiring abroad should research the tax rules where they are planning to retire to find out how they would be affected.

In general though, passive income (e.g. from dividends, pension plans, rents, interest, and social security income) of Americans are considered taxable by the US whether the recipient lives in the US or abroad. The exceptions are plans such as 401(k) plans that have US tax exempt distributions (although these may be considered taxable in another country).

US social security payments for Americans who live abroad can be paid either into a US bank, mailed abroad, or transferred to a foreign bank.

While the last option may seem the most convenient for Americans who have retired overseas at first glance, it may come with unwanted side effects. For example, transferring to a foreign bank may trigger a tax liability in the country where the bank is (depending on the tax rules in that country), while just having a bank account in a foreign country may create an additional US reporting burden for the expat, such as filing an annual Foreign Bank Account Report (depending on the maximum account balance during a tax year combined with balances of any other foreign financial accounts the expat may have, even if not in their name).

US tax filing requirements for Americans living abroad are complex, and we recommend that anyone considering retiring or moving abroad should contact an expat tax specialist to discuss their situation at their earliest convenience.