@splasatrik having read through this thread and re-familiarizing myself with the Portugal treaty and the technical explanation thereof, I don't understand the reluctance to " resource "the Social Security benefits that are being taxed by both Portugal and US. Under article 20(b) Portugal is allowed to tax Social Security Benefits by virtue of the recipient being a US Person (citizen/ GreenCard ) while residing in Portugal . Thus applying article 25 para 1, allows a US person whom is a resident of Portugal to mitigate the effects of double taxation.
Only way to achieve this foreign tax credit is to "resource" the income by treaty and show this as foreign income on form 1116.
The only issue I see here is that because of the way US taxes Social Security ( amount taxable being controlled by "all other income") , one may be taxed by Portugal at a flat rate but not have any of the Social Security Benefit being taxable in the USA. I think there is language in the treaty to cover this situation ( equal treatment and non -discrimination ).
Does that help ? Is there more I can do for you ?
