US Taxes on social security lump-sum earned in another country

[justme4641]

Jurisdiction

Central America

I've been a US citizen for around 10 years now. I'm originally from the Republic of Panama. In my younger days I worked in Panama, but not enough years (25 yrs) to be eligible for a Panamanian retirement social security pension. So instead, now at 62, and long since leaving Panama, I'm eligible for a lump sum pro-ratio payment in lieu of a social security pension for the 11 years I worked there in Panama. It's about US $8,000.

It will be a Panamanian government check (they use the US currency in Panama). The Panamanian government does not tax this check. I'm trying to figure out how to include this in my US 2019 tax return when I file it. Would I also have to file a Report of Foreign Bank and Financial Accounts (FBAR) .

Can anyone tell me how this foreign social security lump-sum will be treated for US income tax purposes? Is there a flat tax rate on this? thanks.

 

[army judge]

Can anyone tell me how this foreign social security lump-sum will be treated for US income tax purposes?

Yes, a licensed CPA or a tax attorney in Florida where this post appears to be originating.

I wouldn't take tax advice from people unknown to you on the internet.

Why?

Some people could lie to you, you'd act on fictitious or spurious information, resulting is additional IRS penalties, fees, interest, or costs.

Is there a flat tax rate on this?

Again, ONLY seek tax advice from a licensed tax attorney or CPA that is known to you, and trusted by you.

 

[Tax Counsel]

Can anyone tell me how this foreign social security lump-sum will be treated for US income tax purposes? Is there a flat tax rate on this? thanks.

Panama is not one of the countries with which the U.S. has a tax treaty. You can look at the IRS list of tax treaties to see which countries we do have treaties with.

Internal Revenue Code § 86 is the section of federal tax that deals with Social Security income, but it is expressly limited to U.S. Social Security. There is no other section that specifically addresses foreign social security payments. The result is that what you receive will be simply ordinary income to you and subject to tax just like most pension income, interest, dividends, etc.

Would I also have to file a Report of Foreign Bank and Financial Accounts (FBAR) .

That depends on the details of the way Panama's system works. If it establishes an account that you own, much like having a bank account or investment in a financial institution, you'd need to do the FBAR. If there is no account you have ownership of or signatory authority over but is instead simply a right to receive a payment from the Panama government at some point in time then in my view no FBAR filing is needed for that. But on this if you think you don't have to file I'd suggest getting a second opinion from a local tax attorney. You could, of course, just file the FBAR to be on the safe side if you want. Check out the IRS FBAR reference guide for more information.