If the irs states that my Social Security is not taxable if I live in another country (Germany), why does Turbo Tax not recognise this and tax my ssa?

[pk · Accepted solution]

@martin-phillips , as a US person ( citizen / GreenCard ), your  Social Security Pension is taxable  to the same extent as all other SSA recipients i.e. 1/2 Social Security disbursement plus all other income is used to determine whether none or up to 85% of SSA benefits are taxable ( for federal purposes ).   So I am not sure where you are reading that your SSA benefits are not taxable.  If you are living in Germany ( or  for that matter any  foreign country ), unless  US-that country treaty  conditions preclude such )  you as a US person , are taxed as if you are living here in the USA -- USA cannot  , for tax purposes , distinguish taxation based on where you live.

Please tell me more about your situation so I can understand the scenario and will help once I hear from you

pk

[DoninGA]

@pk is the expert in these matters but I need to ask one question

If you are a resident of Germany did you file a German tax return and if so did you report the US Social Security benefits you received on the German tax return?

[Dhebij]

 I have the same question and fear!   This is the first time Turbotax has done this.   It turns out I may owe taxes to Germany for years back, for Social Security I paid US taxes on.  Help.   Apparently, I can only apply for the last two years back (due date for 3rd year back was over 3 years ago).    Can you help please?24l08l2024 US SS in Germany

[pk]

@Dhebij , before we get into whether   US Social Security Benefits are taxable and if so by whom let me request some info:

1. Are you a US person ( Citizen/ GreenCard) ?  Are you also a resident of Germany ( Physical Presence or Bonafide Resident ) ?

2.We are talking about taxation of SSA benefits provided by US Social Security Admin  based and based on  FICA or SECA ( Social Security & Medicare  ) taxes  paid while working in the USA  (  working abroad under  Totalization Agreement ) -- yes ?

3.You are retired  and/or have chosen  to claim SSA benefits from US SSA while residing abroad -- yes ?

4.  When did you start SSA benefits ?  Have been reporting this income ( US SSA benefits ) to both US and Germany ?

Please  provide as much detail as you can .   Note that the taxation of   US sourced income for a resident of Germany is generally per the rules / conditions of the tax treaty between the two countries  and generally based on reciprocity.

I will come back to this once I hear from you.

pk

[Dhebij]

• I am a US citizen and legal resident.   
• I have never filed a German tax return.   
• I have been retired since 2006.  From 2006 - 2014 my pension from the US Civil Service Retirement System (CSRS) was not taxable in Germany.
• As a requirement of CSRS, I was forced to apply for and began recieving Social Security  at my minimum retirement age in 2014.  
• I reported and paid taxes on my social security retirement on my US tax returns only.
• Most earnings on which my Social Security is based were earned as an employee of the US government in Germany, as a US civil servant working under the US German Totalization agreement.  

[Dhebij]

1. I am a US person ( Citizen).  Since I retired, I am also a resident of Germany ( Bonafide Resident ).  Previously, while employed, I was under the Status of Forces agreement and did not require residency to be here.

2. Yes we are talking about taxation of SSA benefits provided by US Social Security Admin  based and based on  FICA or SECA ( Social Security & Medicare  ) taxes  paid both while working in the USA  AND while working abroad under  the Totalization Agreement .  

3.  Yes, I am retired.   And, yes I applied for SSA benefits from US SSA while residing abroad.  I did so that early as a requirement of my US government pension (CSRS Offset),  which forced me to apply for and begin recieving Social Security  at my minimum retirement age in 2014.  

4.  When did you start SSA benefits ?   2014, but now (for 2023)  is the first Year in which Turbotax software asked the question about residency and treated my Social Security Income as non-taxable in the US.

5. I reported my US SSA benefits on my US tax returns only.  I have never filed a German tax return.   

6.  My social security was earned while a civil servant of the US working in Germany so I believed it was excluded from German tax as a pension paid by the US government for for services rendered to the US government, just like my US Civil Service Retirement System (CSRS) pension is not taxable in Germany under the tax agreement.  

[pk]

@Dhebij , thank you for your response,

Based on my understanding of  US-Germany treaty of 1986 & update thereof of 2006, article 19 pretty much  requires   (a)  that  US  Social Security  benefits received by a resident of Germany can only be taxed by Germany  and (b) that Germany treat this US Social Security benefit as if it were distributed by German  Social Security equivalent for tax purposes. 

 In your case this is problem #1  and the only action you can take is  file a return  with Germany recognizing this income for future ( and perhaps  for  2023 and 2022 ) .   This also does mean that you have to file amended  US return for those years ---- you  just add  a "negative income" as other income and  under comments say " income excluded per article  19 of US-Germany Tax Treaty "

 Problem #2 is what to do with all the years that are beyond  "rtefund" for the US tax filings.    The treat does not call pout any corrective actions.  So taking the view that  (a)  not aware of the requirement of 2006 treaty / not intentional disregard of the rules     and      (b)  having paid the due taxes to one country  ( by mistaken action ) --- just let "sleeping dogs lie snoring" --- ignore the issue  but take all corrective actions for the future..

 You are thereby in a way claiming that you would be irreparable harmed  by correcting German returns and not being able to get a refund from US.  Note here also that  for most tax treaties, govt. payments by one party is taxable ONLY by that country , thus supporting lack of knowledge. / expectation.

That is my view.

Ref == >  Germany - Tax treaty documents | Internal Revenue Service (irs.gov)

Is there more I can do for you ?

pk

[Dhebij]

Thanks for your response.  I am still in shock.  Do you know why Turbotax just this year (for 2023) added the screen I sent you, asking if you are a resident of Germany?  They never asked before and although my address was clearly in Germany all these years they treated SS as taxable in the US.

[pk]

@Dhebij , I don't know what to say  i.e. how to explain the issue.  In fact I have never actually even looked at this till you brought this to my attention ( Thank You for that ).

It probably was that way for a long time.

I did go back at look at the worksheets  for both 2022 and 2023.  In 2023  new lines have been added :

2022  -- you go from  the SSA-1099 entry  ( lines  A through H, sum this as your total  SSA benefits on line 1. Line 2 starts with  "enter one half of line 1 and continue to compute the taxable portion of SSA benefits.

In 2023, after the  lines A through H , you get line 1a as the original line 1.  Then you have  lines 1b and 1c allowing for " Benefits exemption from US taxes  due to living abroad in country with tax treaty" and  thereby allowing line 1c  to be the new SSA benefit for computing both paths of SSA taxability.   Quite a clever way to handle the situation  by splicing in two lines.

 I do not believe that  there will be any noise / explanation as to  why this was not implemented  post 2006   NOR  why the IRS  checks  ( either  during  the test period prior to "open for business" or during actual  filing season )  did not uncover this issue.

Have no knowledge if the other  tax prep software have had the same issue or not.

 I humbly apologize that  none of use volunteers even caught this issue.

pk