TN 13 (09-00)

GN 05010.110 Withholding Taxes from Past Benefits Due or Paid to a Beneficiary

A. INTRODUCTION

Since there is no automated system to collect taxes on benefits already paid, SSA only posts the amounts of these tax liabilities to each beneficiary's record with an Alien Withholding Status Code (AWSC) of 8.

B. POLICY

1. General

A beneficiary's status at the time payments are made determines whether taxes will be withheld, not his/her status in the month(s) for which payment is made.

A benefit is considered paid on the date. For example, if a benefit check is dated 7/3/00, tax will be withheld if the beneficiary is a nonresident alien (and not a resident of a country with which the U.S. has a tax treaty providing for a complete exemption to the withholding tax) on that date. Tax status is determined based on the day this date falls in the U.S.

An individual is a U.S. or a tax treaty country resident on any day during which he/she was such a resident for at least part of the day.

2. Taxes Due on Benefits Already Paid

Generally, SSA does not collect taxes due on benefits already paid. Beneficiaries are not advised of this unpaid tax liability.

Unpaid tax liability amounts and the periods for which they are due are corrected if an error is made. However, if a tax liability has been posted to SSA's records with an AWSC of 8, current or future benefits are not used to recover this tax due.

EXCEPTIONS:

  1. An unpaid tax liability for an overpayment month can be deleted in certain overpayment cases as explained in SM 00852.107.

  2. An unpaid tax liability can be collected and deleted in certain cases, as explained in GN 05010.112, in which a determination is made that payments can be made to citizens of a country because of a new or revised determination on the social insurance system of that country under section 202(t)(2) of the Social Security Act.

3. Facility-of-Payment, Section 203(i) Cases

For months prior to 1/96, when a working beneficiary was put in work status for a month after the month the work began, the tax withheld from the benefits paid to the working beneficiary was not an incorrect tax withholding for which a tax refund is due. It was a tax SSA posted to the incorrect record; i.e., it should have been posted to the record(s) of the nonworking beneficiary(ies).

It is an error which SSA can correct, subject to the following restrictions:

  1. Tax records of beneficiaries who are living in the same household can be corrected, not those of beneficiaries living in other households;

  2. Unpaid tax liabilities of other members of the household to whom 203(i) provisions do not apply cannot be corrected;

  3. The effective tax date (ETD), when correcting the beneficiaries' tax records, is the date the tax was erroneously posted to the working beneficiary's account. It is immaterial whether these actions involve prior years; and

  4. Corrected statements are not issued for prior years.

C. PROCEDURE

1. Tax Due on Benefit(s) Paid

If a beneficiary is subject to tax withholding and action is taken after the alien status change has occurred:

  1. Withhold taxes from the first benefit paid after the AWSC is changed.

  2. Do not withhold taxes for the months for which payment has already been made.

  3. Post the tax due for the months for which payment has been made as an unpaid tax liability.

  4. Do not send the beneficiary notice of the unpaid tax liability amount.

2. Beneficiary Should Not Have Been Taxed

If a beneficiary should not have been subject to tax withholding:

  1. Take action to stop tax withholding.

  2. Refund any taxes incorrectly withheld if the conditions in GN 05010.132 exist.

  3. Advise the beneficiary to file with IRS for any taxes which SSA cannot refund.

D. REFERENCE

SM 00852.175 - SM 00852.185, Section 203(i) cases

E. EXAMPLES

Example 1: Tax Due on Benefits Paid

A, a U.S. resident, files for retirement insurance benefits (RIB) in 4/00. His claim is adjudicated in 6/00 with a 4/00 date of entitlement (DOE). In 8/00, SSA becomes aware he left the U.S. in 5/00 (before his first payment was made) and established residence in Sweden. The first payment from which SSA can withhold tax is the one for