The Social Security benefits paid to beneficiaries who are citizens and residents of India are exempt from tax withholding to the extent that the benefits
are based on Federal, State or local government employment.
Due to systems limitations, SSA cannot withhold tax at a variable rate (i.e., a tax
rate based on the circumstances of an individual case). Thus, SSA is able to stop
tax withholding only if the qualified beneficiary's benefit is based entirely on Federal,
State or local government employment. Where SSA is unable to stop tax withholding,
it advises the beneficiary of the percentage of the benefit which is tax exempt and
that he/she must file with the Internal Revenue Service for a tax refund at the end
of each tax year.
In computing the percent of benefits based on Federal, State or local employment,
SSA rounds fractions up to the next highest percent.