TN 12 (09-98)
GN 05010.010 Beneficiaries Subject to the Withholding Tax
The withholding tax applies to title II benefits paid to nonresident aliens both inside and outside the U.S.
It does not apply to:
U.S. citizens (see GN 00303.100 - GN 00303.120 for information on who is a U.S. citizen; except for persons born in the U.S. Virgin Islands, see GN 05010.010A.3. for special information on these individuals);
Aliens who are U.S. residents, including aliens who are outside the U.S. but have kept their resident status;
Nonresident aliens who are residents of countries (listed in GN 05010.010A.2.) which have tax treaties with the U.S. exempting residents from the withholding tax; and
NOTE: Residence, NOT CITIZENSHIP, in these countries exempts a beneficiary from tax withholding.
Beneficiaries who are not U.S. citizens but are citizens of American Samoa, Guam, the NMI or Puerto Rico.
2. Tax Treaty Countries
Residents of the following countries are exempt(in all or in part) from tax withholding because tax treaties with the U.S. specifically provide for an exemption or a lower tax rate:
Canada (Benefits are completely exempt from the withholding tax as explained in GN 05010.160.);
Egypt (Benefits are completely exempt from the withholding tax.};
Germany (Benefits are completely exempt from the withholding tax as explained in GN 05010.162.);
India (Benefits are exempt from the withholding tax if the beneficiary is a citizen of India and to the extent that the benefit is based on Federal, State or local government employment, as explained in GN 05010.165.);
Ireland (Benefits are completely exempt from the withholding tax as explained in GN 05010.166.);
Israel (Benefits are completely exempt from the withholding tax as explained in GN 05010.163. See GN 05010.082 for guidelines on establishing Israeli residence.);
Italy (Benefits are completely exempt from the withholding tax as explained in GN 05010.161.);
Japan (Benefits are completely exempt from the withholding tax.);
Romania (Benefits are completely exempt from the withholding tax.);
Switzerland (Benefits are taxed at a lower rate as explained in GN 05010.167.);
United Kingdom (U.K.) (Benefits are completely exempt from the withholding tax. The treaty defines the U.K. as England, Scotland, Wales and Northern Ireland.)
NOTE: The U.K. tax treaty does not exempt residents of the Isle of Man and Channel Islands (i.e., Aldernay, Brechou, Ecrehou Rocks, Guernsey, Herm, Jersey, Jethou, Les Minquires, Lihou and Sark) from tax withholding.
3. Persons Born in the U.S. Virgin Islands
The Internal Revenue Service (IRS) considers citizens of the U.S. Virgin Islands nonresident aliens unless they became U.S. citizens through birth or naturalization in a State, Territory or D.C. or by derivation.
4. Special Groups Which May Claim Exception
a. Nonresident Alien Spouses of U.S. Citizens or Residents
IRC Section 6013(g) permits a nonresident spouse of a U.S. citizen or resident to elect to be treated as a U.S. resident. However, IRS regulations require withholding agents (e.g., SSA) to withhold tax even where that spouse elects to be treated as a U.S. resident.
b. Residents or Citizens of Totalization Countries
The equal treatment provisions of totalization agreements do not exempt beneficiaries from tax withholding since taxation is based on IRS, not SSA, law.
c. North American Indians Along the U.S. - Canada Border
Since IRS has advised SSA that there is no treaty which exempts American Indian Tribes along the Canadian border from this tax, members of American Indian Tribes along the U.S.-Canada border must meet the same rules as other Social Security beneficiaries in order to be exempt from the tax withholding. However, many North American Indians born in Canada can have U.S. resident status. See GN 00303.420A.1. for a discussion of permanent resident status of these individuals.
See GN 00303.100 for a discussion of U.S.citizenship.
If the nonresident alien spouse of a U.S. citizen or resident asks SSA to stop withholding tax because he/she is treated as a resident by IRS,
Tell the spouse that the withholding must continue; but a credit can be claimed against other tax liabilities when their tax return is filed.
Refer the spouse to IRS Publication 54 for information on the election and its effects.