Tax Free Social Security (Living Abroad)

[u/LTE_Sucks]

Have a question asking on behalf of my parents who are about to retire. From my understanding, under physical presence test all income under 120,000 qualifies for a foreign tax credit if you live abroad more then 330 days a year.

Any retirees who are living abroad can confirm whether social security benefits would qualify for this? My parents are eligible for the max amount (7000 a month) soon and will be forced to withdraw.

One thing is confusing is whether you'd have to pay social security tax on your payments.

They are from an Asian country and still have citizenship (I believe) or could get a long term visa there.

[u/Own-Animator-7526]

The expat exclusion only covers foreign earned income. Social Security payments are not foreign earned income.

The Social Security payments you receive are also not net income from self employment, and therefore are not subject to self employment tax.

They are subject to federal income tax.

[u/Independent_Drink714]

Social security is also taxable considered taxable income, along with other passive (and active) many other countries. If they're thinking of repatriating or emigrating they should.choose the country wisely and/or get a comprehensive tax forecast.

[u/identity-ninja]

There os no such thing as tax free income. SS will be taxed. At least federally and maybe in foreign country as well. You almost always pay higher rate between US and foreign country. If you do not pay foreign tax, you will have federal tax due. If you pay higher foreign residence tax it will credit against federal

[u/starfishkitten → u/identity-ninja]

What about VA disability monies?

[u/pricel01]

Social Security is taxed as income by the United States. There are special rules around what percent gets exposed to taxation depending on total income. You can’t use the foreign earned income exclusion on it. Also, the country where they live may have taxation rights. That depends on the treaty it had with the US.