Advising clients on Social Security issues is complicated enough. When you add the issue of advising clients who are not U.S. citizens, the situation becomes even more complex. With financial advisors serving a growing number of non-citizen clients, the ability to advise these clients on their Social Security options will become an increasingly important skill to have. Here are a few issues for financial advisors to be aware of when helping clients.

Immigration Status

In order for non-citizens to be eligible for benefits, they must meet the criteria set forth by the Social Security Administration (SSA). Basically, they need to be classified as a “qualified alien” and meet one or more of the classifications as a qualified alien that will allow them to collect a benefit.

Foreign workers need to obtain a Social Security number in order to work in the U.S. In order to obtain their Social Security number, they must be able to document their immigration status and authorization to work in the U.S.

Non-Citizens Living in the U.S.

Non-U.S. citizens who are living legally in the United States and who have earned a benefit can collect Social Security. There are also provisions if some of the 40 quarters were from work done by your spouse or parent. Your client may be eligible to collect Social Security benefits as a non-citizen residing in the U.S. under several conditions that include:

  • If they were receiving Social Security and legally residing in the U.S. as of August 22, 1996.
  • If your client was considered Lawfully Admitted for Permanent Residence (LAPR) and has 40 quarters of qualifying work.
  • In some cases, work done by a spouse or a parent can be counted towards the 40 quarters.
  • The client is currently on active military or the client was honorably discharged and that discharge was not because of their alien status. This status might also apply to spouses or dependents of U.S. military personnel in some cases.

There are other conditions and rules here as well, so your client needs to investigate their unique situation and determine their eligibility.

Non-Citizens Who Leave the U.S.

When some non-citizens leave the U.S. for six months or more, their benefits stop. In order to resume receiving benefits, they need to return to the U.S. for at least a month. There may be additional rules pertaining to the benefits for those receiving Social Security benefits as a surviving spouse or a dependent.

Eligible workers who are citizens of most European countries, Canada, Israel, Japan, and South Korea can receive benefits wherever they live. The list of specific countries to which this applies is updated and changes from time to time and can be found on the Social Security Administration site.

There are several countries to which the U.S. Treasury rules prohibit sending payments. These countries currently are Cuba and North Korea.

Non-Citizen Spouses of U.S. Expatriates

For U.S. citizens living abroad who are married to non-citizens, the rules regarding Social Security benefits for the non-citizen spouse can be complicated. This depends upon whether the United States has an international agreement with either the non-citizen’s country of residence or the country of citizenship.

An alternative is if the non-citizen becomes a legal U.S. resident for at least five years while married, then neither the country where the couple may reside in the future or which country the foreign spouse is a citizen of matters.

Tax Issues

Your non-citizen clients who are non-resident aliens will have money withheld from their benefit checks by the Social Security Administration as part of a broader set of rules governing payments to non-resident aliens. The SSA is required to withhold up to 30% of the maximum amount of the non-resident alien’s Social Security benefit that would be taxable under the rules, currently 85% of their benefit. This equates to your non-resident alien clients seeing 25.5% of their benefit being withheld.

Any clients in this situation will need your advice and guidance. In some cases, they may be able to receive a refund of some or all of this withheld money by filing a U.S. tax return.

Impact of Foreign Benefits

Non-citizen clients may be eligible to receive retirement benefits similar to Social Security from their home counties. These benefits may trigger the Windfall Elimination Provision of the Social Security rules. This provision can result in reduced Social Security benefits under these circumstances. However, the Government Pension Offset provision of the Social Security rules generally doesn’t reduce benefits for non-citizen spouses of dependents who have earned retirement benefits in their home countries.

The Bottom Line

Understanding Social Security benefits can be tricky for your clients who are U.S. citizens. The rules are often like a maze, and your help as their financial advisor is often invaluable. For clients who are non-citizens, the rules are that much more complex. As financial advisors acquire more non-citizen clients, they would be wise to be sure that they understand these rules in order to provide proper advice to these clients.