US Social Security Pensions

Introduction

Tax Briefing - Issue 28, outlined the scope of the new Double Taxation Convention between Ireland and the United States. It made reference to the provisions of Article 18(1)(b) which exempts United States’ social security pensions paid to residents of Ireland from United States tax.

Exemption from US Tax

This exemption applies whether the Irish resident is a United States citizen or not. Although there are similar exemptions in some older United States treaties the exemption obtained for Irish recipients is a first in a modern United States treaty.

Previously United States social security pensions paid to non-resident aliens were subject to a 25.5% withholding tax in the United States. This gave rise to many representations for change because the withholding tax in many cases resulted in a higher effective rate of tax than would normally have applied if the pension was taxable only in Ireland.

The exemption from United States tax was conceded by the US side on the basis that these pensions would be subject to tax in Ireland - in effect that there would be a transfer of taxing rights from the United States to Ireland. Section 200 Taxes Consolidation Act 1997 has been amended to remove any doubt concerning the liability to tax in Ireland of the pensions in question.

Position from 6 April 1998

Accordingly, for chargeable periods beginning on or after 6 April 1998 an Irish resident recipient of a United States social security pension will be a chargeable on such pension for income tax purposes. The ordinary rules of self-assessment will apply to such income.