WSJ Ask an Expert: On Social Security Benefits for Former U.S. Green Card Holders

The Wall Street Journal invited Creveling & Creveling to be part of a panel of experts for personal finance on its WSJ Expat site. The following article originally appeared on the WSJ site and has been shared with permission.

Q: A reader submitted this question:

Hi, I have just filed a voluntary I-407 form at the American Embassy, where I renounced the green card I've had since 1971. Am I still entitled to Social Security benefits? How will the Social Security treaty with Chile apply? I've worked 35+ years and paid into Social Security, so will my benefits be forwarded to me directly or will I have to wait till retirement age, which would not make any sense since I'm no longer a resident? Am I entitled to my benefits getting transferred?

A: Chad and Peggy Creveling of Creveling & Creveling Private Wealth Advisory respond:

If you worked legally in the U.S. and paid Social Security or "payroll" taxes for at least 40 qualifying quarters (approximately 10 years), you are typically eligible for U.S. Social Security retirement benefits. Presumably, as you have worked for 35 years and paid into Social Security during that time, you qualify for U.S. Social Security benefits. If you are in doubt regarding your work and contribution history, you can get clarification by checking with the Social Security Administration.

If eligible for Social Security benefits, you will have to wait until you are 62 years old to receive reduced benefits and full retirement age to receive full benefits. The fact that you are no longer a resident in the U.S. does not allow you to claim benefits prior to reaching age 62 for reduced benefits and full retirement age for full benefits.

Relinquishing your green card does not change your eligibility for U.S. Social Security retirement benefits. Once you have given up your green card, you will be treated as a non-U.S. citizen or "alien" and classified as a resident or non-resident alien (NRA). If you reside outside the U.S., you will be classified as a non-resident alien and subject to the rules governing non-resident aliens.

Although you may be eligible for U.S. Social Security benefits, your ability to receive payments outside the U.S. depends on a hodgepodge of treaties and international agreements based on your country of citizenship and residency. As a citizen of Chile, you are able to receive your U.S. Social Security payments as long as you are eligible, no matter how long you stay outside the U.S. You can also check your ability to receive payments while outside the U.S. with the SSA's payments abroad screening tool.

As a nonresident alien, 85% of any U.S. Social Security benefits you receive is subject to a flat 30% tax, unless exempt or mitigated by a lower treaty rate. The U.S. and Chile signed their first bilateral income tax treaty on Feb. 4, 2010, but it has yet to be ratified. Once the treaty has been ratified by both countries and comes into force, your benefits would be taxed by the U.S. at the lower treaty rates.

As a final note, Chile is one of 17 countries that have a Totalization Agreement with the U.S. for the purpose of avoiding double taxation of income with respect to Social Security taxes. Under this agreement, if you qualify separately for both U.S. Social Security benefits and Chilean social security benefits, your U.S. benefit may be reduced.

Since this is a complicated question, in addition to checking with the Social Security Administration, you should consult a tax advisor knowledgeable about cross-border issues.