Taxes on Social Security and New Zealand Government Superannuation

One of the most complex and common discussions on the US tax system for US citizens overseas, is dealing with the tax implications of US and New Zealand retirement accounts.

Fortunately, one straightforward part of the tax system, is for state retirement schemes, such as Social Security and New Zealand government superannuation.

This is set out in the New Zealand United States double tax treaty, and is one of the few areas where the DTA gives us a basic answer of the offset.

We’ll jump straight in…

Is Social Security Taxed In New Zealand?

In short, no. New Zealand does not tax the Social Security income of US citizens.

As mentioned above, this is addressed in the NZ US DTA (double tax agreement), specifically Article 18 (1)(b).

Pensions and other payments made under the social security legislation of a Contracting State to a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned State.

Another way of wording this is:

Pensions and other payments made under the social security legislation of the United States paid to a resident of New Zealand or a citizen of the United States shall be taxable only in the United States.

This article tells us that Social Security income is not taxable in New Zealand. This makes things nice and easy, a rare point in the US tax system.

Is New Zealand Government Superannuation taxable in the US?

Fortunately, it isn’t.

As you may have gathered from the treaty section above, New Zealand Government Superannuation is covered by the same article. Lets switch it up:

Pensions and other payments made under the social security legislation of New Zealand to a resident of the United States or a citizen of the United States shall be taxable only in New Zealand.

This does mean that, if you are a recipient of New Zealand government superannuation, and filing a US tax return, this income must excluded by treaty from your return. Be sure that your US tax accountant is an expert in this area, and familiar with filing Form 8833 – tax treaty disclosure.

Conclusion

As you can see, the NZ US DTA performs a clear and precise job of excluding NZ government superannuation and social security from tax in either country.

But, that doesn’t mean they are entirely tax free…

Do I have to pay tax on my Social Security?

Yes, social security payments are indeed taxable in the USA

However, not all of your Social Security income will be taxed. In order to protect the income of those on Social Security benefits, the amount of Social Security income which is taxable, depends on your total income for the year. Depending on your income, up to a maximum of 85% of your benefits may be included as taxable income. This doesn’t mean an 85% tax rate, but rather the amount of your social security which may need to be included as income in your tax return.

New Zealand government superannuation is also taxable before IRD in New Zealand.

Summary

When a client does begin receiving social security income, it can create a sudden surprise of beginning to owe US tax again. However, fortunately, in most cases the tax on social security is minimal, and is usually withheld by the SSA on payments made.

If you’d like to understand your US tax obligations better, speak to a US tax expert today for advice – info@usatax.nz – http://usatax.nz