How Is U.S. Social Security Taxed in Japan? Social Security, Government Pensions and UN Pensions
【Koshida Accounting Firm Column Date:】
Hello, my name is Taisei Koshida, and I am a certified public accountant and tax accountant in Japan.
I receive questions from Americans living in Japan about IRAs, Roth IRAs, 401(k)s, U.S. LLCs, and U.S. investment income. Another important issue, especially after retirement, is U.S. Social Security.
Some people think that because Social Security is paid from the United States, it is not taxable in Japan.
That is not correct.
If you live in Japan, U.S. Social Security benefits need to be considered under Japanese income tax law, the U.S.-Japan Tax Treaty, and the U.S. tax rules that apply to U.S. citizens.
U.S. Social Security and U.S. federal government pensions are also not the same. Pensions paid by the United Nations and other international organizations need to be considered separately as well.
1. U.S. Social Security Is Taxable in Japan
Article 17 of the U.S.-Japan Tax Treaty covers pensions and other similar remuneration, including Social Security payments. As a general rule, these payments are taxable in the country where the recipient resides.
Therefore, if you are a resident of Japan and receive U.S. Social Security, Japan is generally the country with the primary taxing right under the treaty.
Keeping the Social Security payments in a U.S. bank account does not automatically remove them from Japanese taxation.
If you are a U.S. citizen, however, you also need to consider the saving clause in the U.S.-Japan Tax Treaty, as explained below.
2. How Japan Taxes U.S. Social Security
Under Japanese income tax law, pensions paid under a foreign social insurance system comparable to Japan’s National Pension or Employees’ Pension system are included in the category of public pensions.
U.S. Social Security benefits are therefore generally treated as miscellaneous income from public pensions in Japan.
This does not mean that Japanese income tax is simply imposed on the entire amount received. The taxable amount is calculated using Japan’s public pension deduction.
Amounts received in U.S. dollars also need to be converted into Japanese yen and included in your Japanese tax return, or kakutei shinkoku (確定申告).
Foreign pensions are often paid without Japanese income tax withholding. You therefore need to keep records of the amount received during the year and the amounts converted into Japanese yen.
3. U.S. Non-Permanent Residents Need to Check Remittances
A foreign national who has lived in Japan for a limited period can qualify as a non-permanent resident for Japanese income tax purposes.
During this period, foreign-source income is subject to Japan’s remittance-based taxation rules.
An important point is that you cannot simply label a particular transfer from your U.S. bank account as “Social Security” or “old savings” and determine Japanese taxation based on that label.
You need to compare your foreign-source income for the year with the amount remitted to Japan and calculate the amount taxable in Japan.
The same issue frequently arises with Traditional IRAs, Roth IRAs, U.S. LLC distributions, and other U.S. income.
For more information about remittance-based taxation, see:
Moving to Japan? How Your U.S. Income Is Taxed in Japan
For what changes after five years in Japan, see:
What Happens to Your Japanese Taxes After Living in Japan for 5 Years? A Guide for Americans
4. U.S. Citizens Need to Consider the Saving Clause
This is particularly important for U.S. citizens.
If you look only at Article 17 of the U.S.-Japan Tax Treaty, U.S. Social Security appears to be taxable only in Japan when the recipient is a resident of Japan.
However, the United States generally taxes its citizens on worldwide income regardless of where they live.
The U.S.-Japan Tax Treaty also contains a saving clause. Becoming a resident of Japan does not eliminate the United States’ right to tax its citizens.
The Technical Explanation of the U.S.-Japan Tax Treaty specifically explains that U.S. taxation can remain when a U.S. citizen residing in Japan receives a pension, Social Security payment, or annuity.
Therefore, for a U.S. citizen, the analysis does not end by saying that the treaty assigns taxation to Japan.
When the income is taxable in both Japan and the United States, the general approach is to claim a foreign tax credit in the United States for Japanese income tax. Because the United States taxes its citizens on worldwide income, the foreign tax credit is generally taken on the U.S. side to relieve double taxation.
5. U.S. Federal Government Pensions Are Different from Social Security
Special attention is required if you previously worked for the U.S. government and receive a federal government pension.
A federal government pension should not be treated in the same way as Social Security.
Article 18 of the U.S.-Japan Tax Treaty provides a separate rule for government pensions paid for services rendered to the United States, a political subdivision, or a local authority.
A pension paid by the U.S. government for services rendered to the U.S. government is generally taxable only in the United States.
However, if the recipient is a resident and national of Japan, the pension is taxable only in Japan.
As a result, U.S. Social Security and a federal government pension can have different tax results even when both are received by an American living in Japan.
6. Not Every U.S. Benefit Is Social Security
In actual consultations, people sometimes describe money received from the United States simply as a “pension” or “benefit.”
The name alone does not determine the Japanese tax treatment.
- U.S. Social Security benefits
- Federal government pensions
- Military retirement benefits
- Veterans’ benefits
- Private employer pensions
- Traditional IRA distributions
- Roth IRA distributions or IRA conversions
- Private disability or insurance payments
These are not the same.
A benefit that is tax-free in the United States is not automatically tax-free in Japan.
First, identify the legal nature of the payment. Next, determine its classification under Japanese income tax law. Then check the applicable tax treaty.
For more information about Traditional IRAs, Roth IRAs, and IRA conversions, see:
Moving to Japan? How Your U.S. Income Is Taxed in Japan
7. UN Pensions Are Generally Taxable in Japan
There is also a common misunderstanding about pensions received by former employees of international organizations.
Salary and allowances received while working for the United Nations can qualify for special tax exemptions under conventions concerning the privileges and immunities of international organizations.
That does not mean that a pension received after retirement is automatically tax-free.
When a resident of Japan receives a retirement pension from an international organization for which they previously worked, the pension is taxable in Japan unless a treaty or agreement specifically provides an exemption.
For organizations such as the United Nations, UN specialized agencies, and the Asian Development Bank, retirement pensions are not automatically exempt from Japanese income tax.
Therefore, a Japanese resident receiving a pension from the UNJSPF cannot simply treat it as tax-free because it is a United Nations pension.
For other international organizations, the applicable convention, privileges and immunities agreement, or establishing agreement needs to be checked separately.
8. Three Similar Cases Can Have Different Tax Results
Case 1: A Former Private-Sector Employee Receives U.S. Social Security
If the recipient is a resident of Japan, U.S. Social Security is generally treated as miscellaneous income from public pensions in Japan.
If the recipient is a U.S. citizen, U.S. taxation also remains because of the saving clause. In that case, double taxation is generally relieved by claiming a foreign tax credit in the United States.
Case 2: A Former U.S. Government Employee Receives a Federal Government Pension
This is not Social Security.
If the pension is paid for government service, Article 18 of the U.S.-Japan Tax Treaty applies.
A pension paid by the U.S. government for services rendered to the U.S. government is generally taxable only in the United States.
If the recipient is both a resident and national of Japan, however, it is taxable only in Japan.
Case 3: A Former UN Employee Receives a UN Pension
The fact that the employee’s UN salary was tax-exempt while working does not automatically make the retirement pension tax-exempt.
A UN pension received by a resident of Japan is generally taxable in Japan.
From the recipient’s point of view, all three may look like retirement income received from overseas. Their treatment under the Japanese tax system and applicable tax treaties is different.
9. Documents to Keep for Your Japanese Tax Return
Keeping the documents for each type of foreign pension separately makes preparing a Japanese tax return much easier.
- SSA-1099 or other documents showing annual Social Security benefits
- Payment dates and amounts received
- Federal government pension statements
- UNJSPF or other international organization pension statements
- U.S. tax returns
- Documents showing U.S. income tax actually paid
- Records of remittances to Japan
- Records of U.S. credit card use in Japan
For a U.S. non-permanent resident, pension documents alone are not enough. Remittances to Japan also need to be checked when calculating income subject to remittance-based taxation.
10. Frequently Asked Questions
Q. Is U.S. Social Security tax-free in Japan?
No. U.S. Social Security received by a resident of Japan is generally taxable in Japan. It is generally treated as miscellaneous income from public pensions.
Q. Can I avoid Japanese tax by leaving my Social Security in my U.S. bank account?
Not necessarily. If you are a U.S. non-permanent resident, Japan’s remittance-based taxation rules need to be checked. Once you are no longer a non-permanent resident, foreign income is generally within the scope of Japanese taxation regardless of whether the money remains in a U.S. bank account.
Q. I worked for the U.S. government. Is my pension treated the same as Social Security?
No. A federal government pension for government service is covered by Article 18 of the U.S.-Japan Tax Treaty, while Social Security is covered by Article 17. A pension paid by the U.S. government for services rendered to the U.S. government is generally taxable only in the United States. If the recipient is both a resident and national of Japan, it is taxable only in Japan. Therefore, a federal government pension received by an American living in Japan is generally taxable in the United States, not Japan.
Q. My UN salary was tax-free. Is my UN pension also tax-free in Japan?
No. The exemption that applied to salary while working for the United Nations does not automatically apply to a retirement pension. A UN pension received by a resident of Japan is generally taxable in Japan.
Q. My foreign pension is less than JPY 4 million. Do I still need to file a Japanese tax return?
Possibly. Japan has a filing exemption for certain pension recipients, but the exemption does not apply in the same way when the pension includes certain foreign pensions paid overseas without Japanese withholding tax. Do not determine your filing requirement only by looking at the JPY 4 million threshold.
Q. If a benefit is tax-free in the United States, is it also tax-free in Japan?
No. U.S. tax treatment does not determine Japanese tax treatment. Veterans’ benefits, disability benefits, government pensions, and private pensions need to be classified separately under Japanese tax law and the applicable tax treaty.
Q. I receive both Social Security and Traditional IRA distributions. Can I calculate them together?
No. Social Security, Traditional IRAs, Roth IRAs, and 401(k)s need to be considered separately under Japanese tax law. You also cannot simply copy the treatment shown on your U.S. tax return into your Japanese tax return.
11. For Americans in Japan, the Nature of the Income Matters More Than Its Name
In international tax and accounting in Japan, the words “retirement income,” “pension,” and “benefit” can lead to very different tax results.
In actual consultations, I first check what program or system is making the payment.
I then check:
- Whether you are a resident or non-resident of Japan
- Whether you are a U.S. non-permanent resident for Japanese tax purposes
- What program or system makes the payment
- Whether the payment relates to private-sector or government service
- Which article of the U.S.-Japan Tax Treaty applies
- Whether money was remitted to Japan
- Whether U.S. income tax was actually paid
If you receive several types of U.S. income, such as Social Security, a government pension, Traditional IRA or Roth IRA distributions, or income from a U.S. LLC, classifying each item separately is usually the fastest way to get the Japanese tax treatment right.
For more information about filing a Japanese tax return, see:
How to Prepare a Japanese Tax Return for U.S. Non-Permanent Residents
Contact
Koshida Accounting and Tax Office provides Japanese tax return preparation and international tax consulting for foreign residents, particularly Americans living in Japan.
If you receive U.S. Social Security, a U.S. federal government pension, a pension from an international organization, IRA distributions, or other U.S. income and need help with your Japanese tax return, please contact us.