Retiring Abroad Tax Implications

There are lots of reasons why somebody might want to retire in a new country. Whether it’s part of a search for the ideal exotic location, a hunt for new adventures, or a mission to extend the value of your nest egg, you can gain a lot from retiring out of the country. There are retiring abroad tax implications, though– and they can make a difference in how you choose to handle your finances once you’re through working. Your bank account will thank you for considering these tax rules ahead of time. 

US Tax On International Income: Taxable Income

One of the first steps to understanding retiring abroad tax implications is to understand how the US taxes international income. It’s not the most straightforward process, but there are some guiding principles that are easy enough to understand when it comes to tax laws.

Just because you make your money outside of the US and pay another country’s income tax, it doesn’t mean you’re exempt from paying US taxes, too (if you’re an American citizen).

  • Some ex-pats actually don’t owe US income tax while they live abroad, but even they need to file annual returns with the Internal Revenue Service (IRS)
  • Your country of residence does not determine your responsibility to file a U.S. federal tax return

United States bases taxes off of someone’s citizenship. In most other places, taxes are based on residency. 

  • Because of this, every US citizen and resident alien needs to file a tax return that reports worldwide income (provided it exceeds the threshold limit for filing)

Even if you qualify for tax benefits, like foreign tax credits or the foreign earned income exclusion, you’re probably still subject to the filing requirement. There are very few exceptions. 

  • Income received and deductible expenses paid in foreign currency must be reported on a U.S. federal return in US dollars
  • Expats need to make tax payments in US dollars 

Income From Social Security or Pensions

Usually, retirement income is not taxed by other countries. If you’re a US citizen and you receive Social Security after retiring abroad, it’s very possible that you’ll owe US taxes on that income but not owe taxes in the country where you now reside. 

  • If your only income comes from Social Security, your benefits may not be taxable
  • If your benefits aren’t taxable, you don’t need to file federal income tax returns

People who receive Social Security also receive a Form SSA-1099 Social Security Benefit Statement. The statement lays out your benefit amounts. If you have a pension or another form of retirement income, you should also receive a Form 1099-R for each of those distribution plans. 

I receive income from other sources

If you also receive income from other sources (like investment income in the US or anywhere abroad), it’s possible you’ll need to pay US taxes on some of your benefits. You could also have to report and pay taxes on the income you earn in the country where you’re retiring. 

If this sounds confusing, it’s because it can be– but a financial expert can help. Contact us today to schedule a consultation with a tax professional. We have extensive experience helping our clients with foreign bank accounts, health care, IRAs, credit cards, and more. 

Chairs on a beach, symbolizing Retiring abroad tax implications

Tax Treaties: Legal Tax Reporting Requirements

In the United States, we have to adhere to certain federal income tax treaties with several foreign countries. 

  • These treaties don’t usually exempt residents from the need to file a US tax return
  • Under the treaties, residents (but not necessarily citizens) of foreign countries may be exempt from US income taxes on certain items of income; they may also be taxed at a reduced rate
  • The specific exemptions and rate reductions vary from country to country and depend on the specific items of income

Usually, treaty provisions apply in both the US and the country that the treaty is held with. That means that if you are a US citizen or resident and you receive income from a treaty country:

  • You may be subject to taxes imposed by those foreign countries and…
  • …you may be entitled to specific deductions, exemptions, credits, and reductions in tax rates of those foreign countries

Relinquishing U.S. Citizenship: You Still Have Tax Obligations

A lot changes about your taxes when you retire abroad. If you relinquish your citizenship, it will deeply impact your finances. Some people make this choice intentionally with benefits in mind. For others, the tax implications of renouncing citizenship are happenstance.

  • If you relinquish your US citizenship (or otherwise cease to be a permanent resident of the US), you need to file a dual-status alien return; you’ll also need to attach a copy of Form 8854, Initial and Annual Expatriation Statement and file a copy with the IRS

When you give up US citizenship, you don’t give up your rights to receive social security, pensions, annuities, and other forms of retirement income. However, if you are a nonresident alien and you receive social security requirement income:

  • The Social Security Administration withholds a 30% flat tax from 85% of your benefits; this creates a withholding of 25.5% of your monthly benefit total
    • UNLESS you qualify for a tax treaty benefit

Bogart Wealth Can Help Answer Your Questions About Retiring Abroad Tax Implications and International Living

Retiring abroad can come with a lot of tax implications, but that doesn’t mean that you can’t live the life you want whilst maintaining financial health. Tax treaties and requirements mean that you’ll need to work with a seasoned professional who can help you with your unique financial portfolio. There are even specialized ex-pat tax services like ours designed to help individuals like you meet your goals. This isn’t a comprehensive guide to taxes and retiring abroad. There are lots of variables in the equation. If you’re looking for answers about your retirement, reach out to a financial advisor at Bogart Wealth for help with retirement planning and tax management today. We’ll help create an individualized plan to benefit your financial accounts.


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