PanamaPanama Forum
8 years ago
Expatriation or be denied banking services
8 years ago
Expatriation is an admittedly radical step. But it’s the only way that a US citizen or Green Card holder can permanently disconnect from future tax obligations. And increasingly, it’s the only way that a (former) American can “exist” outside the US, since US citizens living abroad are now routinely denied banking services, mortgages, insurance, and employment.
The good news, though, is that with a couple of exceptions, an expatriate can receive Social Security payments, income from pensions, and other US source income without needing to ever return to the US.
No restrictions exist on Social Security payments sent abroad unless you live in a country upon which the US government has imposed trade or financial restrictions – e.g., North Korea or Iran. In addition, if you live in Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine, Uzbekistan or Vietnam, then the belief Mike had is partially correct. You must make a monthly visit either to the US or to a US embassy to pick up your payment.
One country where Social Security recipients really get screwed is New Zealand. A New Zealand citizen living in New Zealand who isn’t also a US citizen must visit the US at least once every six months in order to receive Social Security payments. The visit must last at least a full calendar month. In other words, if you’re in this situation, you would need to spend at least two calendar months in the US annually to maintain your Social Security benefits. (If you’re interested in learning why this policy exists, read this post.)
Although data from the 2010 census is unlikely to be made public until 2014, the 2000 census indicated that there were 16,000 New Zealanders living in the US. All Kiwis with employment in the US are required by law to pay income tax to the US Government; in addition, everyone - except federal employees or persons with royalty income - must pay into the Social Security (SS) retirement program.
Eligibility for a pension requires a minimum of 10 years residency and a minimum of 40 quarterly payments into the system; each pension is proportional to the individual's contribution. The amount that Kiwis contribute to the US state pension fund each year runs into millions of dollars.
However, US Social Security legislation dictates that eligible foreign citizens of any nation that treats US citizens unfairly in terms of social insurance rights will be denied pension payments if they leave the US. This tit-for-tat legislation does not affect the citizens of almost 200 nations; it is applied only to countries such as Libya, Iran, North Korea (the "rogue" states) - and New Zealand.
In 1991, high-ranking officials from the Social Security Administration (SSA) visited Wellington with the objective of negotiating a social security arrangement with NZ so that US citizens living, working and paying taxes in New Zealand, and Kiwis living, working and paying taxes in the US, would not be treated unjustly over pensions. NZ authorities refused, point blank, to consider the delegation's requests.
Despite having nothing new to offer, senior MSD officials traveled to Baltimore in 1998 and again in 1999 in failed attempts to persuade the SSA to accept their stipulations. In 2002, MSD officials arrived in Washington and asked the NZ Embassy to call prominent Members of Congress Nancy Pelosi (now Speaker of the House) and Clay Shaw Jr (Chairman of the US Social Security sub-committee) to invite them to discuss the lack of portability with NZ over lunch the next day! Not surprisingly, the invitations were declined. Undaunted, and unprepared to offer any concessions or compromises, the MSD officials called in again on SSA authorities in Baltimore in yet another futile bid to persuade the Americans to change their stance.
These taxpayer-funded junkets are all the Ministry has ever had to show for its repeated claims that "officials are continuing to work on the social insurance impasse with the US".
The former chief negotiator for the SSA, the late Barry Powell (who more than once damned NZ authorities as "exasperating"), made the following statement:
"If New Zealand removed the unacceptable restrictions it imposed on American citizens, and if a person in authority sent me a formal diplomatic note to that effect, the United States would free the pension funds of NZ citizens literally overnight."
In their dealings with politicians and the public alike, MSD officials habitually cloud/conceal the "unacceptable restrictions" with complex legal jargon, quoting "sub-section so and so and article such and such of the US Social Security Act…", cultivating the illusion that NZ has the finest state retirement program in the world, and that the inability of New Zealanders to access pension funds invested in the US is entirely the fault of unyielding American authorities. Nothing could be further from the truth.
American citizens working and paying taxes in NZ who wish to return to the US after they have turned 65 years of age - even though they will not be using our roads, health system and so forth - are only entitled to a proportional amount of NZ Super based on their years of residency, instead of the full NZ Super they would receive if they remained in New Zealand.
US citizens who have worked and paid taxes in NZ but who are not actually resident in NZ on reaching 65 years of age are denied the right to any form of NZ Super - even if they have paid taxes for 40 years or more and attempt to apply for NZ Super from abroad, the NZ Government gives them nothing in return for their contributions to the NZ economy.
It is these two points which US SS legislation determines unfair, and rightly so. If eligible American citizens returning home were paid the same rate of NZ Super that they would receive if they had remained in New Zealand, and the application restrictions were removed, the US would immediately free millions of dollars in pension funds of NZ citizens who have worked in the US. It is that simple.
According to figures released in 1998 by the SSA, there were 150 retired New Zealanders being denied US Social Security payments amounting to $70 million. More than a decade later, with more Kiwis working in the US, the amount of denied pension funds is likely to be at least $100 million.
Paying the full rate of NZ Super to eligible US citizens living outside NZ would incur minimal costs to the government, however removing the application restrictions would be a very different matter.
NZ Super is funded through taxation: everyone earning an income in NZ pays for NZ Super in the taxes they pay to the NZ Government. Although the government no longer earmarks a percentage of an individual's income tax for retirement purposes, a significant proportion of the tax nonetheless covers the cost of an old age pension.
If a taxpayer is unable to collect NZ Super in retirement, the taxes he/she has paid for a pension remain in government coffers. The restrictions placed on applying for NZ Super are a very effective means of denying the right to NZ Super, not only to eligible US citizens (and other foreign nationals), but thousands upon thousands of New Zealanders as well.
It is no wonder therefore that recommendations to remove application restrictions on NZ Super for eligible US citizens were greeted with horror by former Social Development Minister Steve Maharey: "But we would have to do the same for everyone else".
Nor is it surprising therefore that cabinet ministers, senior public servants and diplomats have not been candid over the reasons why Kiwis working in the US were being denied their US pension funds - that is, until a New Zealander in San Francisco blew the whistle.
Mr C, an international photographer with royalty income, paid into the US SS program for 30 plus years on a voluntary basis in the belief that he would have a secure retirement pension on returning to NZ in retirement. On learning the truth about his retirement situation, in November 1998 he raised the issue in person with two prominent Members of Congress, Barney Frank (Mass.) and Nancy Pelosi (Calif.)
Taken aback on learning that there were no pension portability arrangements with NZ, Representative Nancy Pelosi suggested that Mr C visit Washington D.C. to raise the issue with the Chiefs of Staff of each Member of Congress appointed to the US Social Security Sub-Committee.
Not one of the Congressional offices on Capitol Hill that Mr C visited was aware of the lack of pension portability with New Zealand. Each office assured him that it had never been approached by the NZ Embassy on the issue. When, as a courtesy, Mr C called on the NZ Embassy during his visit to explain his mission, no one was interested.
Mr C set out to raise awareness of a major injustice and to piece together the real reasons why the US would single out Kiwis for such harsh treatment. He published three reports (known as the Pensions and Politics papers) on a website through the Hastings College of the Law, University of California, warning expatriate New Zealanders of the loss of their US Social Security investments if they left the US. Kiwi associations throughout North America, Hawaii and Puerto Rico were notified of the website: thousands of Kiwis were, for the first time, alerted to their pension status.
The Pensions and Politics papers blamed the NZ Government, not the US, for being entirely responsible for this situation, and why. They criticized the NZ Government for ignoring its human rights obligations as well as international labour conventions protecting individual's pension rights, for fudging the truth and for failing to make any attempts to inform its citizens in the US of their plight.
The papers alleged that civil servants back home resented their countrymen who had found work abroad, and that NZ authorities were totally indifferent to the plight of thousands of their countrymen facing the loss of their retirement savings. The papers recommended that the only way Kiwis could secure their Social Security pension investments would be to apply for US citizenship. The process would involve renouncing allegiance to the Crown; significantly, however, it would result in dual nationality.
Meanwhile, MSD officials were reaching similar conclusions: the recommendations made to the government in the 2003 and 2004 Reports as part of the Review of NZ Super Portability were identical to the proportional system proposed in the second Pensions and Politics papers (2002).
In November 2003, New Zealand's ambassador to Washington, John Wood, admitted that the impasse over social security arrangements between New Zealand and the US could only be broken if New Zealand made legislative changes.
The Embassy finally published in a remote corner of its website information relating to New Zealanders losing their US social security. It acknowledged that American citizens working in NZ were being denied NZ social insurance rights they had earned through the taxes they had paid to the NZ government. It marked the first (and possibly only) official admission that NZ was treating US citizens unfairly.
Back home, in a rare moment of honesty, Minister Steve Maharey conceded, "The ball's in our court." Disappointingly, Mr Maharey then invented excuses not to play ball.
In June 2008, the Labour-led government announced it was undertaking work to facilitate the conclusion of a SS agreement with the US. One of the reports submitted to Cabinet (as part of the 7 year Review of NZ Super Portability) outlined a means of bypassing the obstacles to a SS agreement with the US. There was no need to abolish the application restrictions on NZ Super: there was a much more profitable option.
American citizens seconded to work in NZ are subjected to double taxation; by paying full taxes in NZ, seconded workers make social security contributions in NZ as well as their country of origin. Removing the double taxation would circumvent US SS legislation, forcing the US to release millions of dollars in Kiwi pension funds.
The report to Cabinet proposed "One way of offering social security tax relief is to calculate NZ Super expenditure as a proportion of total taxable income…this is found to be equivalent to a rebate of 8% of the secondee's taxable income."
The report stated that the loss of tax revenue, estimated at $4 million for 2010/11, would be compensated by the reduction in the cost of funding NZ Super ($10 million for 2010/11). If NZ offered a SS tax relief to US secondees, the US would have to pay SS benefits into NZ - which could then be directly deducted from recipients' NZ Super. Under a SS agreement, the US would be requested to release the details of all US SS recipients "which would ensure that recipients would not be able to evade the direct deduction from their NZ Super."
After the Ombudsman ordered the release of this report, MSD published the report in full on its website, so that anybody - including American authorities - could view it. The recommendations to secure a SS agreement with the US are mind-numbing in their stupidity and offensiveness.
The proxy calculation of 8% tax rebates proposed for seconded US workers in lieu of social security benefits raises huge legal questions. Will the same rebates be offered to other foreign nationals seconded to work in NZ? Does not equity demand that similar rebates are offered to NZ citizens who are denied the right to NZ Super?
MSD continues to claim that there are many American citizens living in NZ who are not declaring their US SS to WINZ offices. There is some truth to this claim, but not for the reasons given by MSD. Many US citizens have not declared their US SS income to WINZ simply because they have never applied for NZ Super. To accuse, in an official document, Americans living in NZ of acting fraudulently could not be more insulting or more offensive.
In spite of cabinet ministers' endless claims that where pensions are concerned NZ adheres to international principles of cost-sharing, the publication of this report proves beyond all doubt that NZ has no intention whatsoever of sharing pensions costs with other nations, but that its sole intent in securing a SS agreement with the US is to lower the cost of funding NZ Super by $10 million a year.
For the past decade, Australia has enjoyed the benefits of SS and free-trade agreements with the US, both of which continue to be elusive where NZ is concerned. NZ Pension Abuse believes that the abuse of the pension rights of Americans living in NZ is one of the significant impediments to a free-trade agreement.
Through Section 70 and the Spousal Provision, New Zealand is unique in that it plunders the US SS income of American citizens to subsidize its own state retirement program. Before quitting politics, former Deputy Prime Minister Dr Cullen commented "In the government's view, what is required is for the US to recognize the unique nature of New Zealand's superannuation scheme". Dr Cullen - and all NZ politicians past, present and future - can be assured that US authorities have never had any difficulty in recognizing New Zealand's superannuation scheme as unique.
With the demise of the Labour Government, proposals to remove double taxation from secondees faded into oblivion. Since then, the National Government has maintained a deafening silence on the issue of pension portability with the United States.
Although Ruth's payments into the US Social Security program during her 12 years in the US entitle her to a modest pension, she is denied payment because she remains a citizen of New Zealand. As a resident of New Zealand, she is denied NZ Super because she is married to an American citizen. This double whammy is grotesque. Yet the very MPs who, in Opposition, were sympathetic to her situation, no longer want to know her since National became the Government.
Here is a tool you can use to determine your eligibility for Social Security payments if you live outside the US: http://www.ssa.gov/international/payments_outsideUS.html.
If you’re not a US citizen, a withholding tax of 25.5% applies to your monthly payment. This tax may be reduced or eliminated if there’s a tax treaty between the US and your residence country. Whether or not you are a former US citizen has no effect on your eligibility for payment of this tax.
Other pension payments from US sources. Most such payments are distributions from a “qualified” retirement plan. The term “qualified” refers to the Employment Retirement Income Security Act of 1974 (ERISA). ERISA-qualified plans include 401(k) plans and most state and federal pension plans.
The general rule for pension payments to non-US citizens living outside the US is that they’re subject to a 30% withholding tax. With one exception, if you live in a country with a tax treaty with the US, that withholding tax may be reduced or eliminated.
And that exception? If you’re wealthy enough to be a “covered expatriate,” (click here, then scroll down, for the definition), you still pay the 30% withholding tax. But you can’t use a tax treaty to reduce this withholding tax. If the country you live in taxes pension income, your total tax burden on these payments could easily exceed 50%.
Military pensions have a special status. If you receive a military pension, you’ll generally lose it completely if you expatriate. Forewarned is forearmed.
Individual Retirement Accounts. An IRA is not considered an ERISA-qualified plan, but if you’re not a US citizen, it’s generally taxed the same way. You pay a 30% withholding tax on the taxable portion of the IRA, less if you live in a country with a tax treaty that reduces such withholding.
But once again, there’s an exception if you’re a covered expatriate. In that event, your IRA terminates when you expatriate and you must pay tax on the entire untaxed portion of the plan. A small consolation: If you’re under 59½, the early distribution penalty doesn’t apply.
In summary, you generally do NOT forfeit Social Security or pension benefit if you expatriate. The payments are taxed differently, but with minor exceptions, there are no restrictions on such benefit payments
The good news, though, is that with a couple of exceptions, an expatriate can receive Social Security payments, income from pensions, and other US source income without needing to ever return to the US.
No restrictions exist on Social Security payments sent abroad unless you live in a country upon which the US government has imposed trade or financial restrictions – e.g., North Korea or Iran. In addition, if you live in Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine, Uzbekistan or Vietnam, then the belief Mike had is partially correct. You must make a monthly visit either to the US or to a US embassy to pick up your payment.
One country where Social Security recipients really get screwed is New Zealand. A New Zealand citizen living in New Zealand who isn’t also a US citizen must visit the US at least once every six months in order to receive Social Security payments. The visit must last at least a full calendar month. In other words, if you’re in this situation, you would need to spend at least two calendar months in the US annually to maintain your Social Security benefits. (If you’re interested in learning why this policy exists, read this post.)
Although data from the 2010 census is unlikely to be made public until 2014, the 2000 census indicated that there were 16,000 New Zealanders living in the US. All Kiwis with employment in the US are required by law to pay income tax to the US Government; in addition, everyone - except federal employees or persons with royalty income - must pay into the Social Security (SS) retirement program.
Eligibility for a pension requires a minimum of 10 years residency and a minimum of 40 quarterly payments into the system; each pension is proportional to the individual's contribution. The amount that Kiwis contribute to the US state pension fund each year runs into millions of dollars.
However, US Social Security legislation dictates that eligible foreign citizens of any nation that treats US citizens unfairly in terms of social insurance rights will be denied pension payments if they leave the US. This tit-for-tat legislation does not affect the citizens of almost 200 nations; it is applied only to countries such as Libya, Iran, North Korea (the "rogue" states) - and New Zealand.
In 1991, high-ranking officials from the Social Security Administration (SSA) visited Wellington with the objective of negotiating a social security arrangement with NZ so that US citizens living, working and paying taxes in New Zealand, and Kiwis living, working and paying taxes in the US, would not be treated unjustly over pensions. NZ authorities refused, point blank, to consider the delegation's requests.
Despite having nothing new to offer, senior MSD officials traveled to Baltimore in 1998 and again in 1999 in failed attempts to persuade the SSA to accept their stipulations. In 2002, MSD officials arrived in Washington and asked the NZ Embassy to call prominent Members of Congress Nancy Pelosi (now Speaker of the House) and Clay Shaw Jr (Chairman of the US Social Security sub-committee) to invite them to discuss the lack of portability with NZ over lunch the next day! Not surprisingly, the invitations were declined. Undaunted, and unprepared to offer any concessions or compromises, the MSD officials called in again on SSA authorities in Baltimore in yet another futile bid to persuade the Americans to change their stance.
These taxpayer-funded junkets are all the Ministry has ever had to show for its repeated claims that "officials are continuing to work on the social insurance impasse with the US".
The former chief negotiator for the SSA, the late Barry Powell (who more than once damned NZ authorities as "exasperating"), made the following statement:
"If New Zealand removed the unacceptable restrictions it imposed on American citizens, and if a person in authority sent me a formal diplomatic note to that effect, the United States would free the pension funds of NZ citizens literally overnight."
In their dealings with politicians and the public alike, MSD officials habitually cloud/conceal the "unacceptable restrictions" with complex legal jargon, quoting "sub-section so and so and article such and such of the US Social Security Act…", cultivating the illusion that NZ has the finest state retirement program in the world, and that the inability of New Zealanders to access pension funds invested in the US is entirely the fault of unyielding American authorities. Nothing could be further from the truth.
American citizens working and paying taxes in NZ who wish to return to the US after they have turned 65 years of age - even though they will not be using our roads, health system and so forth - are only entitled to a proportional amount of NZ Super based on their years of residency, instead of the full NZ Super they would receive if they remained in New Zealand.
US citizens who have worked and paid taxes in NZ but who are not actually resident in NZ on reaching 65 years of age are denied the right to any form of NZ Super - even if they have paid taxes for 40 years or more and attempt to apply for NZ Super from abroad, the NZ Government gives them nothing in return for their contributions to the NZ economy.
It is these two points which US SS legislation determines unfair, and rightly so. If eligible American citizens returning home were paid the same rate of NZ Super that they would receive if they had remained in New Zealand, and the application restrictions were removed, the US would immediately free millions of dollars in pension funds of NZ citizens who have worked in the US. It is that simple.
According to figures released in 1998 by the SSA, there were 150 retired New Zealanders being denied US Social Security payments amounting to $70 million. More than a decade later, with more Kiwis working in the US, the amount of denied pension funds is likely to be at least $100 million.
Paying the full rate of NZ Super to eligible US citizens living outside NZ would incur minimal costs to the government, however removing the application restrictions would be a very different matter.
NZ Super is funded through taxation: everyone earning an income in NZ pays for NZ Super in the taxes they pay to the NZ Government. Although the government no longer earmarks a percentage of an individual's income tax for retirement purposes, a significant proportion of the tax nonetheless covers the cost of an old age pension.
If a taxpayer is unable to collect NZ Super in retirement, the taxes he/she has paid for a pension remain in government coffers. The restrictions placed on applying for NZ Super are a very effective means of denying the right to NZ Super, not only to eligible US citizens (and other foreign nationals), but thousands upon thousands of New Zealanders as well.
It is no wonder therefore that recommendations to remove application restrictions on NZ Super for eligible US citizens were greeted with horror by former Social Development Minister Steve Maharey: "But we would have to do the same for everyone else".
Nor is it surprising therefore that cabinet ministers, senior public servants and diplomats have not been candid over the reasons why Kiwis working in the US were being denied their US pension funds - that is, until a New Zealander in San Francisco blew the whistle.
Mr C, an international photographer with royalty income, paid into the US SS program for 30 plus years on a voluntary basis in the belief that he would have a secure retirement pension on returning to NZ in retirement. On learning the truth about his retirement situation, in November 1998 he raised the issue in person with two prominent Members of Congress, Barney Frank (Mass.) and Nancy Pelosi (Calif.)
Taken aback on learning that there were no pension portability arrangements with NZ, Representative Nancy Pelosi suggested that Mr C visit Washington D.C. to raise the issue with the Chiefs of Staff of each Member of Congress appointed to the US Social Security Sub-Committee.
Not one of the Congressional offices on Capitol Hill that Mr C visited was aware of the lack of pension portability with New Zealand. Each office assured him that it had never been approached by the NZ Embassy on the issue. When, as a courtesy, Mr C called on the NZ Embassy during his visit to explain his mission, no one was interested.
Mr C set out to raise awareness of a major injustice and to piece together the real reasons why the US would single out Kiwis for such harsh treatment. He published three reports (known as the Pensions and Politics papers) on a website through the Hastings College of the Law, University of California, warning expatriate New Zealanders of the loss of their US Social Security investments if they left the US. Kiwi associations throughout North America, Hawaii and Puerto Rico were notified of the website: thousands of Kiwis were, for the first time, alerted to their pension status.
The Pensions and Politics papers blamed the NZ Government, not the US, for being entirely responsible for this situation, and why. They criticized the NZ Government for ignoring its human rights obligations as well as international labour conventions protecting individual's pension rights, for fudging the truth and for failing to make any attempts to inform its citizens in the US of their plight.
The papers alleged that civil servants back home resented their countrymen who had found work abroad, and that NZ authorities were totally indifferent to the plight of thousands of their countrymen facing the loss of their retirement savings. The papers recommended that the only way Kiwis could secure their Social Security pension investments would be to apply for US citizenship. The process would involve renouncing allegiance to the Crown; significantly, however, it would result in dual nationality.
Meanwhile, MSD officials were reaching similar conclusions: the recommendations made to the government in the 2003 and 2004 Reports as part of the Review of NZ Super Portability were identical to the proportional system proposed in the second Pensions and Politics papers (2002).
In November 2003, New Zealand's ambassador to Washington, John Wood, admitted that the impasse over social security arrangements between New Zealand and the US could only be broken if New Zealand made legislative changes.
The Embassy finally published in a remote corner of its website information relating to New Zealanders losing their US social security. It acknowledged that American citizens working in NZ were being denied NZ social insurance rights they had earned through the taxes they had paid to the NZ government. It marked the first (and possibly only) official admission that NZ was treating US citizens unfairly.
Back home, in a rare moment of honesty, Minister Steve Maharey conceded, "The ball's in our court." Disappointingly, Mr Maharey then invented excuses not to play ball.
In June 2008, the Labour-led government announced it was undertaking work to facilitate the conclusion of a SS agreement with the US. One of the reports submitted to Cabinet (as part of the 7 year Review of NZ Super Portability) outlined a means of bypassing the obstacles to a SS agreement with the US. There was no need to abolish the application restrictions on NZ Super: there was a much more profitable option.
American citizens seconded to work in NZ are subjected to double taxation; by paying full taxes in NZ, seconded workers make social security contributions in NZ as well as their country of origin. Removing the double taxation would circumvent US SS legislation, forcing the US to release millions of dollars in Kiwi pension funds.
The report to Cabinet proposed "One way of offering social security tax relief is to calculate NZ Super expenditure as a proportion of total taxable income…this is found to be equivalent to a rebate of 8% of the secondee's taxable income."
The report stated that the loss of tax revenue, estimated at $4 million for 2010/11, would be compensated by the reduction in the cost of funding NZ Super ($10 million for 2010/11). If NZ offered a SS tax relief to US secondees, the US would have to pay SS benefits into NZ - which could then be directly deducted from recipients' NZ Super. Under a SS agreement, the US would be requested to release the details of all US SS recipients "which would ensure that recipients would not be able to evade the direct deduction from their NZ Super."
After the Ombudsman ordered the release of this report, MSD published the report in full on its website, so that anybody - including American authorities - could view it. The recommendations to secure a SS agreement with the US are mind-numbing in their stupidity and offensiveness.
The proxy calculation of 8% tax rebates proposed for seconded US workers in lieu of social security benefits raises huge legal questions. Will the same rebates be offered to other foreign nationals seconded to work in NZ? Does not equity demand that similar rebates are offered to NZ citizens who are denied the right to NZ Super?
MSD continues to claim that there are many American citizens living in NZ who are not declaring their US SS to WINZ offices. There is some truth to this claim, but not for the reasons given by MSD. Many US citizens have not declared their US SS income to WINZ simply because they have never applied for NZ Super. To accuse, in an official document, Americans living in NZ of acting fraudulently could not be more insulting or more offensive.
In spite of cabinet ministers' endless claims that where pensions are concerned NZ adheres to international principles of cost-sharing, the publication of this report proves beyond all doubt that NZ has no intention whatsoever of sharing pensions costs with other nations, but that its sole intent in securing a SS agreement with the US is to lower the cost of funding NZ Super by $10 million a year.
For the past decade, Australia has enjoyed the benefits of SS and free-trade agreements with the US, both of which continue to be elusive where NZ is concerned. NZ Pension Abuse believes that the abuse of the pension rights of Americans living in NZ is one of the significant impediments to a free-trade agreement.
Through Section 70 and the Spousal Provision, New Zealand is unique in that it plunders the US SS income of American citizens to subsidize its own state retirement program. Before quitting politics, former Deputy Prime Minister Dr Cullen commented "In the government's view, what is required is for the US to recognize the unique nature of New Zealand's superannuation scheme". Dr Cullen - and all NZ politicians past, present and future - can be assured that US authorities have never had any difficulty in recognizing New Zealand's superannuation scheme as unique.
With the demise of the Labour Government, proposals to remove double taxation from secondees faded into oblivion. Since then, the National Government has maintained a deafening silence on the issue of pension portability with the United States.
Although Ruth's payments into the US Social Security program during her 12 years in the US entitle her to a modest pension, she is denied payment because she remains a citizen of New Zealand. As a resident of New Zealand, she is denied NZ Super because she is married to an American citizen. This double whammy is grotesque. Yet the very MPs who, in Opposition, were sympathetic to her situation, no longer want to know her since National became the Government.
Here is a tool you can use to determine your eligibility for Social Security payments if you live outside the US: http://www.ssa.gov/international/payments_outsideUS.html.
If you’re not a US citizen, a withholding tax of 25.5% applies to your monthly payment. This tax may be reduced or eliminated if there’s a tax treaty between the US and your residence country. Whether or not you are a former US citizen has no effect on your eligibility for payment of this tax.
Other pension payments from US sources. Most such payments are distributions from a “qualified” retirement plan. The term “qualified” refers to the Employment Retirement Income Security Act of 1974 (ERISA). ERISA-qualified plans include 401(k) plans and most state and federal pension plans.
The general rule for pension payments to non-US citizens living outside the US is that they’re subject to a 30% withholding tax. With one exception, if you live in a country with a tax treaty with the US, that withholding tax may be reduced or eliminated.
And that exception? If you’re wealthy enough to be a “covered expatriate,” (click here, then scroll down, for the definition), you still pay the 30% withholding tax. But you can’t use a tax treaty to reduce this withholding tax. If the country you live in taxes pension income, your total tax burden on these payments could easily exceed 50%.
Military pensions have a special status. If you receive a military pension, you’ll generally lose it completely if you expatriate. Forewarned is forearmed.
Individual Retirement Accounts. An IRA is not considered an ERISA-qualified plan, but if you’re not a US citizen, it’s generally taxed the same way. You pay a 30% withholding tax on the taxable portion of the IRA, less if you live in a country with a tax treaty that reduces such withholding.
But once again, there’s an exception if you’re a covered expatriate. In that event, your IRA terminates when you expatriate and you must pay tax on the entire untaxed portion of the plan. A small consolation: If you’re under 59½, the early distribution penalty doesn’t apply.
In summary, you generally do NOT forfeit Social Security or pension benefit if you expatriate. The payments are taxed differently, but with minor exceptions, there are no restrictions on such benefit payments
William Russell
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