How Does My Father's Foreign Pension Affect His Social Security Benefits?

Apr 28 2017 - 8:18am

My dad is 67, and is a legal resident with a green card, in 2016 he lost his job and applied for social security with the credits he had from working in the US since 2002. In June of 2016 he applied for his Portuguese pension, and started receiving his Portuguese pension in October. We were told that Portugal had an agreement with the USA and that he needed to declare his foreign pension to Social Security and declare his pension in his income taxes in the USA, instead of doing his taxes in Portugal for that money. When it was time to do his taxes, we were completely lost. We don't know how to declare that money correctly, so he is not taxed at the wrong rate. Today we got a letter from social security stating that the amount he receives would be reduced from $390 to $181 and that he needed to pay the government back $2800. I am assuming we have declared his pension in a way that is making him be taxed twice. Is there a form that we need to submit, or something that we can do so that his pension is taxed according to the treaty? I am not sure what is supposed to happen, but I am sure this is not it. Who do we need to talk to?
can you help?
Thanks,
Sandra

Hi Sandra,

I'm sorry, but my only area of expertise is Social Security, so I can't help you with any tax issues.

The reduction in your father's Social Security benefit rate almost certainly has nothing to do with taxes in any case. Social Security has a windfall elimination provision (WEP) that can result in the use of a less generous benefit computation formula if a person receives a pension based on their work that was exempt from Social Security taxes, like you father's Portugese pension. It sounds like this is the reason that your father's benefit rate was reduced, and why he would be overpaid for any months that he drew both his Portugese pension and his Social Security benefits calculated using regular computation formula.

There are exceptions to WEP, but none likely apply in your father's case unless he qualified for his Portugese pension solely on the basis of the agreement between Portugal and the U.S. (https://www.ssa.gov/pubs/EN-05-10045.pdf). If he would have been eligible for his Portugese pension even without the agreement, the less generous WEP computation formula likely applies.

Best, Jerry