Green Card Retiree leaving US - tax fallout?

[twh]

Dear God in Heaven! What a nightmare for poor Uncle Ove (and me, I guess.... good Samaritan). I will have to inquire whether Ove ever intends to come back (unlikely, I sure don't want a houseguest and travel becomes increasingly more taxing at 85+). We absolutely need that Social Security earned over a lifetime to continue - absolutely. Denmark does have some sort of reciprocity agreement with U.S. so we aren't worried about getting it (so far), but I haven't a bloody clue about the Green Card situation. We are/were good with SSA, but unsure about IRS.
30% withholding strikes me as a perpetual nightmare to have to deal with for ... well, some years. Net worth probably $500K, so not going to hit that limit!
Now to sort out the diametrically opposed advice so far.....

And I think (to my now horror) that Uncle Ove also has a U.S. pension AND SS, so that muddies the waters.

There are firms that specialize in this stuff. When I was working and we had people posted temporarily over in other countries, their compensation included doing their taxes.

If uncle is getting SS and worth an additional $500K, I very much doubt he's got a big burden one way or another. I'd retain his Green Card even if he has some modest tax each year. Just get some firm that does this for the first year or two and then you can probably do it yourself going forward.

[typical.investor]

Thus, it is possible that Uncle Ove's SS is taxed by the US and not Denmark.

I believe so. And I believe the pension is too.

So Ove can:

1) abandon the green card and file a yearly 1040-NR to get withholdings back (after paying tax US liability if any)
2) keep the green card and file a 1040 to declare Danish bank interest and claiming a credit for Danish tax on it. And do the simple FBAR too.

If option two means lowered withholding, that may help Ove with cash flows.

Green card abandonment is not the only choice and it may not be the best choice. Ove is filing with the US every year anyway and abandonment will not change that.

[Eno Deb]

I'd retain his Green Card even if he has some modest tax each year.

I think it is a bad idea to claim a status that you no longer qualify for. If he ever tries to enter the US he will be questioned or possibly even denied entry (which isn't fun, especially not at this age). And the IRS will assume that he is still required to file tax returns.

Regarding the withholding of income tax on the SS benefits by the US, it depends on Danish tax law (which I'm not familiar with) how to best handle this. In some countries that have a double taxation treaty with the US you can deduct the tax withheld by the US from the local tax, in which case you wouldn't have to file a US tax return at all as a non-resident.

Again, I'd strongly recommend to consult the Danish pension agency. They will know how to best handle this.

[twh]

I'd retain his Green Card even if he has some modest tax each year.

I think it is a bad idea to claim a status that you no longer qualify for. If he ever tries to enter the US he will be questioned or possibly even denied entry (which isn't fun, especially not at this age). And the IRS will assume that he is still required to file tax returns.

Regarding the withholding of income tax on the SS benefits by the US, it depends on Danish tax law (which I'm not familiar with) how to best handle this. In some countries that have a double taxation treaty with the US you can deduct the tax withheld by the US from the local tax, in which case you wouldn't have to file a US tax return at all as a non-resident.

Again, I'd strongly recommend to consult the Danish pension agency. They will know how to best handle this.

I'm not suggesting he do something outside the rules or norm...I'm saying that worrying about taxes probably isn't necessary for someone in his financial position and that leaving options open might also be good.

[Eno Deb]

I'm not suggesting he do something outside the rules or norm...I'm saying that worrying about taxes probably isn't necessary for someone in his financial position and that leaving options open might also be good.

It's not really an option in this case. US law is clear: if you move to another country with the intention to live there permanently the US permanent resident status is abandoned. See:

https://www.uscis.gov/green-card/after- ... -residence

US citizens don't appreciate how, uhm, unpleasant dealing with the USCIS can be for non-citizens.

I agree though that the tax issue is not that big of a deal, since you can always hire an expert to handle it.

[ebeb]

Also review the expatriation tax info https://blog.myrawealth.com/insights/ex ... tax%20bill.

[typical.investor]

I'm not suggesting he do something outside the rules or norm...I'm saying that worrying about taxes probably isn't necessary for someone in his financial position and that leaving options open might also be good.

It's not really an option in this case. US law is clear:

Yes, US law is clear, but unfortunately you do not understand it.

Please read what you yourself posted .... https://www.uscis.gov/green-card/after- ... -residence

Reporting Loss of Permanent Resident Status
Internal Revenue Code section 6039G(d)(3) requires the Department of Homeland Security to inform the Internal Revenue Service if you lose permanent resident status because you:

Have been ordered removed from the United States; or
Chose to abandon your status and surrender your Green Card.

Again, your status is only lost in the eyes of the US if you abandon it or it's adjudicated as lost.

Your link also says:

Abandoning Permanent Resident Status
You may also lose your permanent resident status by intentionally abandoning it, including but not limited to:

Moving to another country and intending to live there permanently;
[Staying away too long etc etc]
...

However, the word *may* is very important. Status is not actually lost until abandoned or adjudicated. This is why the IRS doesn't receive notification if you are out of the country for 50 years on your green card. Until a judge rules that you don't have status, you have status. If you try to re-enter after 50 years, you better have a good excuse or the judge will order you removed.

My wife violated the USCIS terms and was let in under agent discretion.

My friend violated the USCIS terms so badly she was automatically assumed per USCIS policy to have abandoned her permanent residence in the United States. She was ordered to court when she tried to enter, sent to court and the judge ruled differently (because she had a reason). She retained her residency and now is a citizen.

See the word *may* on that page. This is what *may* means.

The IRS will consider you a green card holder as a US person for taxation purposes until they abandon the green card or it is adjudicated they are not. It does not matter what the USCIS thinks or says. Only a judge can take it away from you. The USCIS can make you see a judge before letting you in, but that is it.

Ove can file as a US Person until he abandons his green card or is adjudicated to have given it up.

Please stop posting incorrect information. This is tiring.

[TedSwippet]

The US tax court disagrees with you. From Angloinfo:

It really doesn't, if you read closely:...

You've been proved wrong multiple times now. Please stop posting incorrect information.

[TedSwippet]

I would really like to not have to file U.S. taxes annually!

Yeah, but even if Ove abandons the green card, he will still need to file a 1040-NR. That is a requirement for US sourced income (pension) and the way to get with holdings back.

Although you've been a consistent voice of both reason and correctness on this thread -- and thank you for that, otherwise it would have been me posting all the corrections you've posted! -- the above isn't quite right.

It's certainly the way to get any overwithheld US tax back, but as a general rule, if your only US source income is FDAP (things like bank interest, stock dividends, and so on), pension or social security income from the US, and if your US tax withholding equals your US tax liability, there is usually no requirement to file a 1040-NR (see form instructions).

Most of the time, US tax withholding for nonresident aliens is exactly their US liability. Payer's withhold at either flat treaty rates or flat non-treaty rates, and US tax for nonresident aliens is those flat rates. So most people in Ove's situation, most of the time, {most people} could file the I-407, 1040-C, and later 1040-NR/1040 final year combination, including the execrable form 8854 for the US's soviet-style exit tax, and from then on never file another US tax return, but instead breathe the sweet, sweet fresh air of freedom from the IRS. If there is a need for a 1040-NR, it's usually down to a broker's or bank's error (usually involving mishandling a form W-8BEN).

Edit to add: Strikethrough above, fixes in {...}. It is likely pretty common, but not universal, and specifically perhaps not always the case for Denmark. Mea culpa. Written in a hurry. Sorry.

[typical.investor]

I would really like to not have to file U.S. taxes annually!

Yeah, but even if Ove abandons the green card, he will still need to file a 1040-NR. That is a requirement for US sourced income (pension) and the way to get with holdings back.

Although you've been a consistent voice of both reason and correctness on this thread -- and thank you for that, otherwise it would have been me posting all the corrections you've posted! -- the above isn't quite right.

It's certainly the way to get any overwithheld US tax back, but as a general rule, if your only US source income is FDAP (things like bank interest, stock dividends, and so on), pension or social security income from the US, and if your US tax withholding equals your US tax liability, there is usually no requirement to file a 1040-NR (see form instructions).

Most of the time, US tax withholding for nonresident aliens is exactly their US liability. Payer's withhold at either flat treaty rates or flat non-treaty rates, and US tax for nonresident aliens is those flat rates. So most people in Ove's situation, most of the time, could file the I-407, 1040-C, and later 1040-NR/1040 final year combination, including the execrable form 8854 for the US's soviet-style exit tax, and from then on never file another US tax return, but instead breath the sweet, sweet fresh air of freedom from the IRS. If there is a need for a 1040-NR, it's usually down to a broker's or bank's error (usually involving mishandling a form W-8BEN).

Thanks for the correction.

Wow, I am surprised that withholdings would equal US liability. Since pension income is taxed by the US (source) at ordinary rates which vary, I didn't think a treaty would stipulate the US rate of tax and thus the withholding may be too much or too little depending on which bracket was ended up in.

If US tax withholding equals US tax liability, then I agree that would be best.

And ifUS tax withholdings equals US tax liability for NRAs, then I want that system for citizens too!

Anyway, good info Ted!!! You know I just didn't want Ove to be burdened by excess withholdings on US sourced income. If that is not the case then yeah I agree abandonment is best.

[Vogatrice]

including the execrable form 8854 for the US's soviet-style exit tax, and from then on never file another US tax return, but instead breath the sweet, sweet fresh air of freedom from the IRS.

Oh yes. Best words I’ve read here! I’ve been through the expatriation nightmare myself recently, after 30 years as an expat filing all their awful forms. Each April I breathe that sweet air of freedom.

And I have every intention of collecting Social Security for my precisely 40 quarters of US work when the time comes. I’m in Italy, so it should arrive withholding-free (but Italy will get their bite.)

My only addition to this thread, now that the information has been straightened out, is to read and carefully follow all the non-resident / expatriation instructions, along with getting a good tax advisor for the final year. I also think it is best to go “all the way” with expatriation/formal relinquishment of U.S. status, so that Ove too can breathe that sweet air of freedom.

[TedSwippet]

Wow, I am surprised that withholdings would equal US liability. Since pension income is taxed by the US (source) at ordinary rates which vary, I didn't think a treaty would stipulate the US rate of tax and thus the withholding may be too much or too little depending on which bracket was ended up in.

The extent to which this works depends a lot on the country, and the type of pension. It's not so much that treaties stipulate a rate for pensions; rather that they either reserve tax to either the other country (so withholding is 0%), or to the US (so withholding at some standard IRS-prescribed rate). In some cases then, 0% withholding and 0% US tax liability means it'd be pointless filing a 1040-NR for that.

The only treaty I'm fully familiar with, US/UK, says that for a non-US person (that is, not a US citizen -- the US overrides a lot of the treaty for them with its 'saving clause'), both private pension withdrawals (401k, IRA, and so on) and US social security are taxable only to the UK. Provided that a) you supply the payers with enough W-8BEN forms to satisfy their own internal processes (for Vanguard, that's one for each account; silly, but that's their rule), and b) the payers set withholding to match the treaty rates, in this case 0%, no US tax filing requirement.

(So, lucky me. I'm in the UK. I receive US SS payments, some interest and dividends from lingering US taxable accounts, and yet don't have to file any US tax return. The US taxes dividends at 15%, interest and SS 0%. When I add 401k/IRA withdrawals, these will also be 0% US tax; still no requirement for me to file any US tax returns. But ... Ove is moving to Denmark, not the UK.)

The US/Denmark tax treaty is not the same as the UK one. It seems to be a complete mirror image, and for private pensions a bit of an outlier. Look down the "Pensions and Annuities" column of the IRS's withholding tables for NRAs and you'll see mostly 0%, a few 15%, but 30% withholding for pensions paid to Denmark. The other outliers are France and the Philippines. For Social Security, the normal case is that the US gets to tax that; here it is the UK that is the outlier.

So, in the particular case of poor Uncle Ove, if he files the I-407 and ditches the green card, but has a US 401k or IRA, it does look like there may well be a lifelong requirement to file a wretched 1040-NR and get any overwithholding back from the IRS (with of course a long delay; let's just say the IRS does not prioritise 1040-NR returns). That sucks. It seems I over-generalised the normal case to this particular one in my previous post; sorry. If Ove gets only US SS payments though, no 401k or IRA, and no other US income besides perhaps interest and dividends, there should be no need to file any 1040-NR, since the tax withholding on these will match the US's standard rate on SS payments made to NRAs.

If there's at least a partial silver lining to this, it is that if you have to do it, then filing a 1040-NR is usually pretty simple for most NRAs. You only have to list your US source income, nothing else goes on it. Two or three pages will pretty much cover it. Copy and paste next year, with slightly different numbers. Done.

And if US tax withholdings equals US tax liability for NRAs, then I want that system for citizens too!

Unfortunately, it'd never work out for you. Unlike NRAs, your non-US income all factors into your US tax liability, and the US has no say, or even any realistic visibility, on your non-US earnings, dividends, interest, and so on.

You know I just didn't want Ove to be burdened by excess withholdings on US sourced income. If that is not the case then yeah I agree abandonment is best.

It's a cost-benefit decision.

Not surrendering the green card may still leave some level of overwithholding, because the US has withholding rules on payments made to 'US persons' abroad that sort-of ensure they cannot easily underpay tax. And in that case, Ove would have to file full 1040 returns every year, declare and perhaps pay US tax on Danish bank interest, local dividends, local pensions, perhaps local social security, and deal with FBAR and all of that nonsense. All without any effective right to live in, or even visit, the US. (If you think it morally, ethically, and perhaps constitutionally indefensible that the US would seek to fully tax someone who has no rights to residency, visit, or vote, no argument from me!)

Surrendering the green card (assuming no threat from the US's savage expatriation tax) gives Ove the 1040-NR treatment described above. At worst, simpler and far, far less invasive; at best, zero, no need to file anything. A trade-off though for potentially larger US tax overwithholding, and potentially also a higher overall tax burden, depending on the difference between local Danish rates and the US's rates for NRAs, and the nature of the payments Ove receives from the US (SS, 401k/IRA, both, dividends, interest, and so on).

That's US tax for NRAs for you, I'm afraid. Never simple, never straightforward, never clear and never unambiguous.

[Eno Deb]

Please read what you yourself posted .... https://www.uscis.gov/green-card/after- ... -residence

Reporting Loss of Permanent Resident Status
Internal Revenue Code section 6039G(d)(3) requires the Department of Homeland Security to inform the Internal Revenue Service if you lose permanent resident status because you:

Have been ordered removed from the United States; or
Chose to abandon your status and surrender your Green Card.

Again, your status is only lost in the eyes of the US if you abandon it or it's adjudicated as lost.

[Unnecessary comment removed - moderator ClaycordJCA]. Try staying outside the country for an extended period without re-entry permit, and then re-entering the country. You will be questioned and most likely your green card will be taken away because you abandoned it, and depending on what you say you may be denied entry (which will stay on record and cause further trouble on future entries as well). [Unnecessary comment removed - moderator ClaycordJCA] [. . .] there is a difference between no longer qualifying for permanent resident status and the point in time when the authorities detect and enforce it.

And if you leave the country with the intention to permanently live abroad, you abandon your permanent resident status immediately. The only fully lawful thing to do in this situation is to file an I-407. [Unnecessary comment removed - moderator ClaycordJCA.]

[clemrick]

You might consider posting on taxmama.com. There is at least one person who answers questions that is an expert on international tax matters. If she doesn't know the answer, she probably knows who does.

[typical.investor]

Please read what you yourself posted .... https://www.uscis.gov/green-card/after- ... -residence

Reporting Loss of Permanent Resident Status
Internal Revenue Code section 6039G(d)(3) requires the Department of Homeland Security to inform the Internal Revenue Service if you lose permanent resident status because you:

Have been ordered removed from the United States; or
Chose to abandon your status and surrender your Green Card.

Again, your status is only lost in the eyes of the US if you abandon it or it's adjudicated as lost.

You're a real piece of work. Try staying outside the country for an extended period without re-entry permit, and then re-entering the country.

Been there. Done that.

You will be questioned

So?

and most likely your green card will be taken away because you abandoned it,

NOOOOOOOOOOO! This is where you are wrong. The USCIS can not take it away. They can only refer you to see a judge who can. If USCIS physically takes your card and doesn't give it back, you still retain your rights until it's abandoned by you or adjudicated.

Again, this was never meant to say you will be perpetually allowed to enter the country, but only that you retain rights until permanent residency is formally terminated.

and depending on what you say you may be denied entry (which will stay on record and cause further trouble on future entries as well).

And you may be allowed in too. And you may be allowed to keep the green card even if the USCIS claims you abandoned it. You have to see the judge.

Actually, you may very well be asked to go to your city of record and await the hearing at the nearest USCIS courtroom. And you may even become a US citizen after all this drama.

You seem incapable of understanding that there is a difference between no longer qualifying for permanent resident status and the point in time when the authorities detect and enforce it.

Sorry we got dragged into this. I just wanted to explore possible benefits to remaining a US person in terms of lower withholdings.

And if you leave the country with the intention to permanently live abroad, you abandon your permanent resident status immediately. The only fully lawful thing to do in this situation is to file an I-407. And that is the last thing I will post in this thread.

You should not give advice and argue about things which you don't understand. I'll take your 'incapable of understanding' and 'piece of work' comments as compliments of the most sincere kind and blush from your flattery. Stop it! I only want what is best for Ove.

If not surrendering the green card has possible benefits, they should be explored because under US law, he is a US person until he voluntarily abandons the status or it is adjudicated as taken away.

[TedSwippet]

If not surrendering the green card has possible benefits, they should be explored because under US law, he is a US person until he voluntarily abandons the status or it is adjudicated as taken away.

Just one further thought on this. If, for whatever reason, not surrendering the green card so as to retain 'US taxable person' status is the choice, he might as well go the whole hog and take out US citizenship before leaving the US.

The US tax pain gets no worse, but at least then he has the option to visit or even live in the US without having any threats of hassles like immigration judges and so on, and has a vote (for what that's worth). The only thing that worsens is that if he changes his mind later on, renouncing US citizenship costs $2,350(*), but giving up a green card is free, at least at present.


(*) At the moment it is $2,350. DOS has indicated an "intent" to reduce that, but only in the face of a pending lawsuit. And of course, "intent" is not "action". It's quite possible that this is the same "intent" as the US gave in 2010 for FATCA reciprocity, but which thirteen years later it still somehow hasn't got round to providing.

[international001]

So, in the particular case of poor Uncle Ove, if he files the I-407 and ditches the green card, but has a US 401k or IRA, it does look like there may well be a lifelong requirement to file a wretched 1040-NR and get any overwithholding back from the IRS (with of course a long delay; let's just say the IRS does not prioritise 1040-NR returns). That sucks.

Can you explain? Dont't 401k/IRA qualify as pension and therefore US will withold 30% for a NRA

Some questions I have about Danish treaty:

- Why doesn't mention Social Security as other treaties do? It's assume it's a pension?
- Why the 30% witholding is not mentioned in the treaty (just on the table). The 15% witholding for dividends is

Remember also the serious warning for 401k/IRA in my previous post (viewtopic.php?p=7103991#p7103991. 401k/IRA in Denmark are a trap

Just one further thought on this. If, for whatever reason, not surrendering the green card so as to retain 'US taxable person' status is the choice, he might as well go the whole hog and take out US citizenship before leaving the US.

How would that work? I understand because not being a US resident, US still wiholding 30%. If Denmark taxes are 35%, Denmark gets a 5%.
Then, if your final US tax liability after doing your 1040 as a good US citizen is 31%, you can resource some of the income to Denmark so you get a credit for the 1% [1]
If your final US tax liability is 28%, I guess you get that 2% back [2]. Not sure about that one, so please correct me if I'm wrong

So it may be benefitial in [2] for you. You have to do resourcing and 1116, that it's no fun.

[international001]

Have you ever abandoned a green card? I abandoned my wife's for this reason - out of the US for several years, harassed reentering, and still have tax obligations. Point to where the IRS/USCIS says differently if you disagree.

I have friends harassed even if they reenter the US just every year with a green card.
So do you think the harassment is worse if you have not filled your taxes?
Can you enter as a tourist with your original passport or that would be even worse?

[frose2]

International001 writes (italics added):

Some questions I have about Danish treaty:

- Why doesn't mention Social Security as other treaties do? It's assume it's a pension?

Art. 18 of the US-Denmark tax treaty states: "payments made by a Contracting State under provisions of the social security or similar legislation of that Contracting State to a resident of the other Contracting State . . . shall be taxable only in the first-mentioned State." Thus, the treaty does mention Social Security.

[hachiko]

Assume the green card is being shredded. Person not coming back. What if he just files this year and goes off the radar? With just SS and a bit of income, no need to file. And the retiree will be subject to Danish taxes (and gets all the benefits of DK citizenship, free medical for example). Oh yeah, we need to cancel Medicare Parts B/D....

I don't think that'd do it. Destroying the card does not remove tax responsibilities. It's not like they're showing the green card when filing taxes today.

Reminds me of parks and rec
"Be careful, that's a very powerful magnet and it WILL destroy your credit cards."
"Destroy my credit cards?! Debt and everything???"

[typical.investor]

Have you ever abandoned a green card? I abandoned my wife's for this reason - out of the US for several years, harassed reentering, and still have tax obligations. Point to where the IRS/USCIS says differently if you disagree.

I have friends harassed even if they reenter the US just every year with a green card.

Yeah, my wife was entering every six months or so. Six months and a few days was trouble, but got in through agent discretion. Over a year may get you a court date. There is a two year re-entry permit available though.

So do you think the harassment is worse if you have not filled your taxes?

No idea. I imagine so if they have that information. We always filed.

Can you enter as a tourist with your original passport or that would be even worse?

I don't think that is possible. Doesn't everyone at least need an ESTA? It would likely not be granted.

Again, my comments were not meant to suggest re-entry on an old green card or after a year outside is easy. Only that legally the status of resident is not revoked until voluntarily abandoned or adjudicated as such. And it's clear the IRS keeps you on the clock until then. So if filing as a US person is advantageous (lower withholdings, quicker refund, standard deduction), I say file as a US person if you still legally have the tax status of a US person.

Maybe there is an advantage in this case, or maybe not. I just think it should be perhaps considered as an option to consider.

[TedSwippet]

So, in the particular case of poor Uncle Ove, if he files the I-407 and ditches the green card, but has a US 401k or IRA, it does look like there may well be a lifelong requirement to file a wretched 1040-NR and get any overwithholding back from the IRS (with of course a long delay; let's just say the IRS does not prioritise 1040-NR returns). That sucks.

Can you explain? Dont't 401k/IRA qualify as pension and therefore US will withold 30% for a NRA

They do, and it will. But in this case, US withholding will not match US tax liability. The treaty says which country may tax pension withdrawals (and this case it is exclusively the paying country, so US for a 401k/IRA), but nothing about how that country may tax them.

If you're not entirely protected from US tax entirely by treaty then, which is the case here, the US taxes pensions paid to NRAs by splitting it into two components (this article explains much better than IRS "guidance"). The US taxes the part of a withdrawal that is from contributions at graduated rates (ECI) that are typically much lower than 30%, and the rest, the part that is from investment growth, at a flat 30% (FDAP). (And yes, working out the apportionment of these on any given pension payment or withdrawal will be difficult at best, and impossible at worst -- the US doesn't give a two hoots about creating tax rules that nobody can feasibly comply with.)

The blended rate of these split ECI and FDAP treatments on a withdrawal will very probably be less than the 30% withheld. 1040-NR required to recover the overwithholding.

Just one further thought on this. If, for whatever reason, not surrendering the green card so as to retain 'US taxable person' status is the choice, he might as well go the whole hog and take out US citizenship before leaving the US.

How would that work? I understand because not being a US resident, US still wiholding 30%. If Denmark taxes are 35%, Denmark gets a 5%.
Then, if your final US tax liability after doing your 1040 as a good US citizen is 31%, you can resource some of the income to Denmark so you get a credit for the 1% [1]
If your final US tax liability is 28%, I guess you get that 2% back [2]. Not sure about that one, so please correct me if I'm wrong

So it may be benefitial in [2] for you. You have to do resourcing and 1116, that it's no fun.

Not applicable, as far as I can tell. The US/Denmark tax treaty reserves tax rights on US pension payments made to a Danish resident to the US. Article 18 paragraph 1. So the whole double-tax with credits and the awful form 1116 doesn't apply in this scenario. The US will probably withhold at a lower 20% rate for payments to a US person, rather than 30% for NRAs. Either way though, as a US person the recipient gets the pleasure of having to file a 1040 annually with the IRS annually anyway, and the difference between withholding (at whatever rate) and their tax liability comes out in the wash when that is filed.

This sort of nonsense would be the case for pension payments from a Danish pension, though. Here the treaty reserves tax to the paying country, but the US overrides that specifically for US citizens and other US persons (including green card holders) using its 'saving clause'. Article 1 paragraph 4.

[TedSwippet]

Again, my comments were not meant to suggest re-entry on an old green card or after a year outside is easy. Only that legally the status of resident is not revoked until voluntarily abandoned or adjudicated as such. And it's clear the IRS keeps you on the clock until then.

Stated more simply, "US permanent resident" is a sliding scale. It is much more permanent for tax purposes than it is for immigration purposes. :-(

[typical.investor]

I agree. I think the pension is US taxable.

The US will probably withhold at a lower 20% rate for payments to a US person, rather than 30% for NRAs.

I think the minimum is 10% for a US person. It says so clearly for non-periodic payments, but periodic only suggests greater than zero https://www.irs.gov/publications/p505#e ... 1000194503

Either way though, as a US person the recipient gets the pleasure of having to file a 1040 annually with the IRS annually anyway, and the difference between withholding (at whatever rate) and their tax liability comes out in the wash when that is filed.

Well the US person would also get the standard deduction. And as you say the 1040 probably is processed faster than the 1040-NR.

Is there a lower treaty rate for Social Security withholdings in the Denmark agreement? Otherwise it's like 25% or something.

So that was my concern that Ove suddenly would have a big chuck withheld every payment and not be able to get it back until the IRS finally gets around to doing the 1040-NRs (non-resident) returns.

So I thought if bank interest wasn't too high (since Danish income would get dragged into the US return) that it might work out favorably especially with the standard deduction that non-resident aliens don't get.

10% withholding on the pension and 0% on the social security as a US person seems better than 30% on the pension and 25% on social security as an NRA. Plus the US person gets the standard deduction (but has to pay US tax on Danish interest). But I am not familiar with the treaty rates so this may be an overstatement of withholdings on an NRA case. And maybe he has the cash to just wait it out till the refund comes in (in USD as a check perhaps - ouch can he get it deposited).

I just wanted to give Ove an option. My grandmother got very sentimental about the oddest things when she got old. As much as anything, I could just picture Ove saying "no, I don't want to give up my green card" for whatever reason he has. Grandma only got like that around 96 or so. Before that was smooth sailing.

[TedSwippet]

So I thought if bank interest wasn't too high (since Danish income would get dragged into the US return) that it might work out favorably especially with the standard deduction that non-resident aliens don't get.

Right. As mentioned before, it's a cost-benefit decision.

At one extreme, the treaty arranges things so that a Danish resident US citizen living purely on US SS payments apparently faces a much lower total tax rate than an NRA in similar circumstances. (Assuming the NRA cannot reliably apply the treaty 'Non-discrimination' clause, Article 24.) At the other extreme, because of the US's precious citizenship based taxation, a Danish resident US citizen living purely on Danish or other non-US income could well find a US tax liability somewhere in their finances that an NRA wouldn't face.

So it's all down to what the mix of income streams is, how the relative tax rates for each country compare, and (of course) whatever future anti-expat laws congress might gin up in future.

Finally, the question of tax withholding is really only tangential to the tax liability. For me, overwithholding but a refund that ends up with a lower tax liability would beat correct withholding but a higher tax liability. The first is just cash-flow; the second is a deadweight loss. But then, my priorities may not be the same as Ove's.

[typical.investor]

Finally, the question of tax withholding is really only tangential to the tax liability. For me, overwithholding but a refund that ends up with a lower tax liability would beat correct withholding but a higher tax liability. The first is just cash-flow; the second is a deadweight loss. But then, my priorities may not be the same as Ove's.

That's a good point. I agree, but didn't think Ove would end up paying more in taxes by keeping the green card. I just didn't think interest would be that high. At 2.3% (Danish long rate), you'd have to have a considerable amount (>$500k) to exceed the $12,950 standard deduction (that an NRA doesn't get).

But as you mentioned, there might be other Dannish income that gets added in. But wouldn't Dannish Social Security get taxed by Denmark and not the US?

[hachiko]

Can you enter as a tourist with your original passport or that would be even worse?

When you enter the U.S., you're required to present them with your U.S. documents (for lack of knowledge, I don't know what the term of art here is). But basically, if you have a green card, you're required to present that. Similarly, if you have two passports and one is a U.S. passport, you're required to present your U.S. passport on entry, even if your other passport grants you access for your intended purpose.

If you have a green card, I would be surprised if when you scan your non-U.S. passport that it wouldn't bring up some indication to the officer that you have/ had a green card.

Also, just to clarify some earlier posts in this thread talking about dealing with USCIS, when you enter, you don't see USCIS. You interact with CBP. USCIS are admin people. They process paperwork. The CBP officers you see are essentially police officers. USCIS (generally) has no direct role in the entry process.

[TedSwippet]

That's a good point. I agree, but didn't think Ove would end up paying more in taxes by keeping the green card. I just didn't think interest would be that high. At 2.3% (Danish long rate), you'd have to have a considerable amount (>$500k) to exceed the $12,950 standard deduction (that an NRA doesn't get).

Perhaps. Probably, even. But again, it depends. Remember that any US pension income itself counts towards using up the standard deduction (full US SS alone might consume all of that). You cannot use the FEIE to protect pension income. Also, any US savings, so not just Danish bank accounts or similar, but worldwide ones.

Beyond this, several other tax-related dragons lurk. For example, making any local investment in funds or ETFs is likely to trip the US's abominable PFIC tax rules, something that Ove could completely ignore if he switched to NRA. The US's limited capital gains allowance on selling a primary home is probably not going to bother him, but who knows for sure. Gifts to friends and family might need reporting on US gift tax returns, though again unlikely to generate any additional tax, given the current $12M exemption (though of course that could drop in future). CFC rules probably won't bother him. And of course, the biggie, the execrable 'expatriation tax' (though he may well already be in too deep with US tax to sidestep that even as a green card holder). Whether any lower tax overall compensates for dealing with, or defending against, or working around, all of this is again cost-benefit and personal decision.

But as you mentioned, there might be other Danish income that gets added in. But wouldn't Dannish Social Security get taxed by Denmark and not the US?

On my amateur reading of the treaty, Danish SS payments made to a US citizen living in Denmark would be taxable to both countries (presumably with tax credits where necessary to avoid actual double-tax). Treaty Article 18 paragraph 2 reserves tax rights to the country paying the SS (so Denmark), but the US then steps in with its "gotcha" saving clause, Article 1 paragraph 4, to neuter this for US citizens and presumably(*) green card holders. Article 1 paragraph 5 lists some exceptions, but Article 18 paragraph 2 is not one of them.

As usual then, you have to read every US treaty twice. Once to understand how it sets out things in general, and then a second time to see what few parts of it remain and are useful to you if you are a US citizen or green card holder.


(*) "Presumably", because Article 1 paragraph 4 specifically and clearly mentions "citizens", but is more waffly about "residents". Eventually you reach Article 4 paragraph 1, which reads:

1. Except as provided in this paragraph, for the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature.

The US taxes green card holders -- or more accurately, people who hold permanent resident status, actual card or not! -- wherever on (or off) the planet they live. It seems a safe bet then that a green card holder cannot escape all of these. Topsnik seemingly could not. Even if no others apply, presumably a green card is an "other criterion of a similar nature".

[international001]

International001 writes (italics added):

Some questions I have about Danish treaty:

- Why doesn't mention Social Security as other treaties do? It's assume it's a pension?

Art. 18 of the US-Denmark tax treaty states: "payments made by a Contracting State under provisions of the social security or similar legislation of that Contracting State to a resident of the other Contracting State . . . shall be taxable only in the first-mentioned State." Thus, the treaty does mention Social Security.

Damn.. my search function failed tx

I wonder what means when the use of may is used in a treaty. From Spain treaty:

(b) social security benefits paid by a Contracting State to a resident of the other
Contracting State or a citizen of the United States may be taxed in the first-mentioned State

I guess then I have to go to the tables, that says 30%, and this tax witholding is equal to tax liability (previous credits). Then Spain would tax its share?

[international001]

I don't think that is possible. Doesn't everyone at least need an ESTA? It would likely not be granted.

From this story, it seems possible: https://www.quora.com/Can-you-travel-ba ... green-card

To cut a long story short I was approved for my ESTA and I ended up not filing the I-407

[international001]

They do, and it will. But in this case, US withholding will not match US tax liability. The treaty says which country may tax pension withdrawals (and this case it is exclusively the paying country, so US for a 401k/IRA), but nothing about how that country may tax them.

If you're not entirely protected from US tax entirely by treaty then, which is the case here, the US taxes pensions paid to NRAs by splitting it into two components (this article explains much better than IRS "guidance"). The US taxes the part of a withdrawal that is from contributions at graduated rates (ECI) that are typically much lower than 30%, and the rest, the part that is from investment growth, at a flat 30% (FDAP). (And yes, working out the apportionment of these on any given pension payment or withdrawal will be difficult at best, and impossible at worst -- the US doesn't give a two hoots about creating tax rules that nobody can feasibly comply with.)

The blended rate of these split ECI and FDAP treatments on a withdrawal will very probably be less than the 30% withheld. 1040-NR required to recover the overwithholding.

Well.. tx I again, I learn something new everyday. So SS and pensions are texted differently for NRA
So the contributions would be tax it seems at the usual income brackets
You may consider distributing a big chunk of your pension before moving to the new country.

Not applicable, as far as I can tell. The US/Denmark tax treaty reserves tax rights on US pension payments made to a Danish resident to the US. Article 18 paragraph 1. So the whole double-tax with credits and the awful form 1116 doesn't apply in this scenario. The US will probably withhold at a lower 20% rate for payments to a US person, rather than 30% for NRAs. Either way though, as a US person the recipient gets the pleasure of having to file a 1040 annually with the IRS annually anyway, and the difference between withholding (at whatever rate) and their tax liability comes out in the wash when that is filed.

This sort of nonsense would be the case for pension payments from a Danish pension, though. Here the treaty reserves tax to the paying country, but the US overrides that specifically for US citizens and other US persons (including green card holders) using its 'saving clause'. Article 1 paragraph 4.

YEs, I think you are right.
I was thinking more in things like US dividends that US would tax
So since Denmark has higher taxes, it doesn't seem to me there is any cost on becoming US citizen. Just the burden of doing some taxes.

[international001]

I think the minimum is 10% for a US person. It says so clearly for non-periodic payments, but periodic only suggests greater than zero https://www.irs.gov/publications/p505#e ... 1000194503

Here it seems to says that you can choose the witholding
https://www.thebalancemoney.com/social- ... y-benefits

Is there a lower treaty rate for Social Security withholdings in the Denmark agreement? Otherwise it's like 25% or something.

Doesn't this table say 30%: https://www.irs.gov/pub/irs-utl/Tax_Tre ... 19_Feb.pdf

[typical.investor]

I think the minimum is 10% for a US person. It says so clearly for non-periodic payments, but periodic only suggests greater than zero https://www.irs.gov/publications/p505#e ... 1000194503

Here it seems to says that you can choose the witholding
https://www.thebalancemoney.com/social- ... y-benefits

Yeah, the 10% I cited was for pensions for a US person (including green card holders). I don't believe you can go less than that for payments abroad. For a Dannish NRA, it looks like 30% would be withheld by the US but perhaps I am reading it wrong.

Is there a lower treaty rate for Social Security withholdings in the Denmark agreement? Otherwise it's like 25% or something.

Doesn't this table say 30%: https://www.irs.gov/pub/irs-utl/Tax_Tre ... 19_Feb.pdf

OK yeah, SS is 30% of 85% of the benefit or 25.5 percent withheld for an NRA (unless exempt by treaty which doesn't seem to apply in this case). For a US person, I believe the minimum rate is zero (or technically no-withholding) but you could select one of the higher rates.

[hachiko]

I wonder what means when the use of may is used in a treaty. From Spain treaty:

(b) social security benefits paid by a Contracting State to a resident of the other
Contracting State or a citizen of the United States may be taxed in the first-mentioned State

It's a permissive, in other words, the first state is the one that is allowed to tax. The alternative would be an indication of probability (will, should, likely, may...), an example being "capital gains may be taxable in your state". But since the document is an agreement between two governments it only makes sense for it to mean the former.

[TedSwippet]

I wonder what means when the use of may is used in a treaty. ...

Already answered for you, in this thread: viewtopic.php?p=6307387#p6307387

[TedSwippet]

So since Denmark has higher taxes, it doesn't seem to me there is any cost on becoming US citizen. Just the burden of doing some taxes.

Too reductive. It's a recurrent theme in the US that European and many other non-US tax rates are higher than US ones. And it may be true for headline, marginal, and maybe average rates, perhaps provided you exclude high-tax states like NY and CA, but within this sweeping generalisation there are a lot of cases where living in one of these "higher tax" countries gives a US citizen no protection whatsoever from having to pay US tax and ending up with a higher overall tax bill than their non-US citizen peers.

The clearest example of this is accounts that are locally tax-advantaged or tax-free, but which the US simply will not recognise as tax shelters because they are "foreign". I don't know if Denmark has anything similar to UK ISAs, French PEA account, Japanese NISAs and so on, but these are all examples of accounts that create a tax liability for US citizens living in the UK, France, and Japan, and which non-US citizens in those countries of course do not face. Other examples include income types that a country may not tax but the US does (for example, Switzerland does not tax capital gains), and cases where a country has a special annual tax exemption for specific income types where US tax does not.

All of this means that you have to weigh things carefully. Simply working off the lazy trope of "US tax low; European tax high" is poor planning.

For someone with no intention to return to the US, retaining the green card status and taking out US citizenship are equivalent as far as future US tax liability is concerned. However, US citizenship has a couple of additional non-tax costs. Most obvious is the cost of naturalisation, $725 one-off. Perhaps passport and renewal fees, although a non-issue if there's no plan to ever visit the US in future. And if it all gets too much, $2,350 to renounce (USCIS's pricing here suggests that not having a US passport is three times as valuable as having one).

Finally, the "burden" of doing some taxes can mean having to pay considerably more than otherwise to have the forms prepared annually. A 1040 filed by a US citizen or green card holder abroad can be a complex affair; by comparison, a 1040-NR filed by an NRA is usually quite simple.

[international001]

Yeah, the 10% I cited was for pensions for a US person (including green card holders). I don't believe you can go less than that for payments abroad. For a Dannish NRA, it looks like 30% would be withheld by the US but perhaps I am reading it wrong.

Hmm.. so if you are a US resident you can use 7%, but otherwise it must be >=10%. That sounds weird.
I don't know what I'll do what I'm retired, but usually I like the have withholding as low as possible. I don't mind having to pay more later, even with penalties

[international001]

I wonder what means when the use of may is used in a treaty. ...

Already answered for you, in this thread: viewtopic.php?p=6307387#p6307387

I'm impressed you remember
So I can assume 'may' by US means it will?
I'm always confused because this is information it goes beyond the treaty and don't know where to find it.

Too reductive. It's a recurrent theme in the US that European and many other non-US tax rates are higher than US ones. And it may be true for headline, marginal, and maybe average rates, perhaps provided you exclude high-tax states like NY and CA, but within this sweeping generalisation there are a lot of cases where living in one of these "higher tax" countries gives a US citizen no protection whatsoever from having to pay US tax and ending up with a higher overall tax bill than their non-US citizen peers.

I understand you don't have to pay state taxes when your residence is abroad
You forgot to mention things like NIIT, that cannot benefit from any any tax credit.
You are of course right, but I was thinking more on the simpler taxes for income like SS payments. that are taxed at income rates. If uncle Owe has some other income, sure, it's worth looking into it.

[typical.investor]

Yeah, the 10% I cited was for pensions for a US person (including green card holders). I don't believe you can go less than that for payments abroad. For a Dannish NRA, it looks like 30% would be withheld by the US but perhaps I am reading it wrong.

Hmm.. so if you are a US resident you can use 7%, but otherwise it must be >=10%. That sounds weird.

Yes, it is weird. Payments to those outside the US have higher withholding. (SS might be different and the same option for 0%. I DK).

What's even weirder is doing an IRA to ROTH conversion. Money is withheld by the broker, you add the amount that was withheld from your savings or someplace to the ROTH, and you file to both get the withholding back and explain the amount added to the ROTH was a rollover and not a contribution (which you probably don't have US earned income to do).

[international001]

Yeah, the 10% I cited was for pensions for a US person (including green card holders). I don't believe you can go less than that for payments abroad. For a Dannish NRA, it looks like 30% would be withheld by the US but perhaps I am reading it wrong.

Hmm.. so if you are a US resident you can use 7%, but otherwise it must be >=10%. That sounds weird.

Yes, it is weird. Payments to those outside the US have higher withholding. (SS might be different and the same option for 0%. I DK).

What's even weirder is doing an IRA to ROTH conversion. Money is withheld by the broker, you add the amount that was withheld from your savings or someplace to the ROTH, and you file to both get the withholding back and explain the amount added to the ROTH was a rollover and not a contribution (which you probably don't have US earned income to do).

Really? So your IRA broker needs to know you are not a US resident?
So there seems to be a special set of witholding rules for US citizens and not US residents. Any IRS pointers.. nothing I could find (https://www.irs.gov/individuals/interna ... gn-persons)

[typical.investor]

Yeah, the 10% I cited was for pensions for a US person (including green card holders). I don't believe you can go less than that for payments abroad. For a Dannish NRA, it looks like 30% would be withheld by the US but perhaps I am reading it wrong.

Hmm.. so if you are a US resident you can use 7%, but otherwise it must be >=10%. That sounds weird.

Yes, it is weird. Payments to those outside the US have higher withholding. (SS might be different and the same option for 0%. I DK).

What's even weirder is doing an IRA to ROTH conversion. Money is withheld by the broker, you add the amount that was withheld from your savings or someplace to the ROTH, and you file to both get the withholding back and explain the amount added to the ROTH was a rollover and not a contribution (which you probably don't have US earned income to do).

Really? So your IRA broker needs to know you are not a US resident?
So there seems to be a special set of witholding rules for US citizens and not US residents. Any IRS pointers.. nothing I could find (https://www.irs.gov/individuals/interna ... gn-persons)

If you broker thinks you are in the US and doesn’t withhold anything, I wouldn’t complain.

But if they have a foreign address on record, they will know what to do.

Look at 505 for example … just search “outside” and reference will come up.

https://www.irs.gov/publications/p505#e ... 1000194503

[technovelist]

If I were fortunate enough to be in that situation, I would formally abandon the green card. If it cost me a bit of money, that would be a small price to pay for the peace of mind.

[international001]

If you broker thinks you are in the US and doesn’t withhold anything, I wouldn’t complain.

But if they have a foreign address on record, they will know what to do.

Look at 505 for example … just search “outside” and reference will come up.

https://www.irs.gov/publications/p505#e ... 1000194503

Thanks a lot for the reference. It talks about where the payment is supposed to be delivered. Perhaps a US bank would do it for a withhold rate <10%?
But in the section 'Not To Have Income Tax Withheld' talks about your broker needing to have a US address.
I guess it would be easy to circumvent, but a bit more of withholding doesn't seem a deal breaker, anyway.