Drawing SS And Working Here?

Good luck with that

          Today I am going to write about a subject, unfortunately as complex as my main discipline, which is tax law; U.S. Social Security benefits.

Social Security rules are quite complex by themselves, in the “regular” cases, and become even more so when the international “abroad” component is added.

I want to focus on those who are residing in Mexico drawing Social Security retirement benefits, not those on disability or receiving survivor benefits.

You may know there is a full retirement age but a worker can choose to retire early at 62.  This discussion is aimed chiefly at those early retirees.

The foreign work test; The SSA will withhold benefits for each month a beneficiary younger than full retirement age works more than 45 hours outside the United States in employment or self-employment that is not subject to U.S. Social Security taxes. It does not matter how much you earned or how many hours you worked each day.

A person is considered to be working any day he or she:

• Works as an employee or self-employed person;

• Has an agreement to work even if the person does not actually work because of sickness, vacation, etc.; or

• Is the owner or part owner of a trade or business, even if the person does not actually work in the trade or business, or the person does not make any income from it.

Ouch—That’s pretty severe.  This means that if you are self-employed, you will meet those 45 hours pretty early in the month (the 6th day), losing the corresponding benefit payment.

From time to time, the SSA sends out a questionnaire to determine continued eligibility for benefits.  You can’t dodge this questionnaire, because if you do not fill it out and send it in, your payments will stop.  The questionnaire is not exactly user friendly, and if you need to report work, you may need to attach parts of your income tax returns.  But that is what is needed to ensure you get the allowable benefits.  The questionnaire must be signed under affirmation of truth, so think twice about consequents of straying to far from the truth.

If you (or your employer) paid U.S. income taxes and Social Security taxes on your work, you do not need to worry about the foreign work test and you will not be subject to reductions on account of it.  Also, the foreign work test does not apply once you reach full retirement age.

But don’t forget that all early retirees (no matter where they live) are subject to the annual income test in which retirement benefits are reduced (and paid later) if wage income exceeds certain amounts.

Plan early, plan ahead, and enjoy Mexico!


Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies.  His love of things Mexican has led him to devote part of his practice to the tax matters of U.S. expats in Mexico.  He can be reached at tax@orlandogotay.com.