No. 10 - Pensions: taxes, reductions, benefits

Taxes of pensions (points A and B)

US - Social Security and Polish - ZUS or KRUS

( prepared by: Elizabeth Baumgartner, Zbyszek Koralewski and Teodor Lachowski;

translated by Zbyszek Koralewski; edited by Richard Brzozowski )

Useful Information based on the provisions which existed at the middle of the year 2016.

The rules will change after the ratification of the Polish-American tax agreement, signed on 

February 13, 2013 and approved by the Polish parliament on June 21, 2013.

Note: recipients of Social Security residing in Poland may resign from purchasing 

Medicare insurance.

Reductions in pensions  (point C)

 persons who have reached the full American retirement age can work without a reduction in benefits of Soc. Sec. and also ZUS is not reduced for people who have reached the full Polish retirement age. However, 0 % ; 50 % ; or 85 % of your benefits may be taxable – p. A. 1.

If you are below the full retirement age and work, your Soc. Sec. and ZUS may be reduced. 

How to receive spousal benefits free (point D)

Take advantage of the option called "Spousal benefits".

Requirements: your spouse started to draw Soc. Sec. pension and you are at least 62 years old.

You can choose to receive a pension; the amount will depend on your age and the amount of your spouse's retirement - how much you are entitled, check here: https://www.ssa.gov/oact/quickcalc/spouse.html

About the Polish American pension matters you can read in: www.poradnikSukces.com

A.  People who live in US and have:

1. Only US retirement / pension - pay: American income tax on income from around the 

     world depending on the amount and type of their income, and other factors (0 to 36.9%).

     This is explained in the publication 915: https://www.irs.gov/pub/irs-pdf/p915.pdf 

     Your Social Security will not be taxed if the sum of 1/2 of Soc. Sec benefits plus all the other
     income is lower than $25 000 for individuals and $32 000 for married couples . Above

     these limits 50% of your benefits will be taxed. Above the sum of $34 000 for singles and 

     over $44 000 for married filing together, 85% of Social Security benefits is taxable. Married

     couples living together and filing separately pay tax on 85% of the pension regardless of the

     sum of ½ Soc. Sec. benefits + other income. 

2. American and Polish retirement / pension - pay:

     a. US income tax on income from around the world (Including Polish retirement)

          see above  p. A 1 

     b. Income tax in Poland from Polish retirement. Polish payer -ZUS, KRUS- deducts tax of 

           18% (information below in p. B. 5. a.)

     c. A part of the American retirement of Soc. Sec., which is reduced under of the provisions 

         of the Windfall Elimination Provision (WEP) because of receiving a Polish retirement 

         pension.  The size of reduction (up to 50% of the Polish pension) depends on the number 

         of years in the Social Security system. It does not apply when: 

           • pensions calculated on the basis of American and Polish retirement periods based on
              the Polish-American pension agreement of 2008 (the so-called. combined pension),
           • pensions from private sources,
           • survivors//family benefits.

3. Only Polish retirement / pension - pay:

     a. income tax in Poland for Polish pensions - ( p. B. 5. a. )

     b. income tax in the US --- ( see above p A. 1 ) .

Note: Double taxation of pensions in Poland and in the United States is partially reduced
            through the use of the Foreign Tax Credit (IRS Form 1116 ).

B.  Persons who have returned to Poland and have:

1. Only American retirement / pension and US citizenship - pay :

    a. US income tax to the IRS on income from around the world - see p. A. 1.

    b. Polish income tax on American pension and income from around the world - see p. B. 5. a.

    c. Contribution to the National Health Fund (health insurance ) withheld by the bank in Poland 

        - see p. B. 5. b.

2. Only US retirement / pension and do not have US citizenship - pay:

    a. American non-resident tax withheld by the US payers: 30% of the pension from the private

        sector, 25.5% of their Soc. Sec. and 30% on the withdrawals from private retirement 

        accounts (eg. IRA, 401 (k))

    b. Polish tax on revenues from all over the world - see p. B. 5. a.

    c. health insurance contribution which is deducted from Soc. Sec. - see p. B. 5. b.

3. Polish and American retirement / pension and US citizenship - pay:

    a. US income tax on income from around the world - see p. A. 1.

    b. Polish income tax on income from around the world (including pensions Polish and 

         American) – p. B. 5. a.
        Please note that the double taxation can be avoided by reporting to Polish Tax Institutions,
                                proof of tax payment in the US.

    c. the contribution to the National Health Fund (health insurance) - p. B. 5. b.

    d. the part of the Soc. Sec pension, which is reduced on basis of WEP - p. A. 2. c.

4. Polish and American income and do not have US citizenship - pay:

     a. American non-resident tax - see p. B. 2. a.

     b. Polish income tax on income from all around the world (including pensions) 

           - see p. B. 5. a. 

              Please note that the double taxation of American retirement can be avoided in Poland

              on the basis of a confirmation from the American Consulate of paying US taxes for 

              non-residents.

     c. the contribution to the National Health Fund - see p. B. 5. b.

     d. part of the pension from Soc. Sec., which is reduced based on WEP - p. A. 2. c.

5. Only Polish income - pay:

    a. Polish income tax. ZUS deducts 18% to the payment of pensions as so called tax down 

        payment.
        Since 2009 the amount of 3,089 zł is tax-free. Tax rate is 18% of income up to 85.528 zł
        and 32% on income over 85.528 zł.

     b. contribution to the National Health Fund collected by ZUS in the value of 9%
          of which 7.75% of the premium reduces the tax levied on withdrawals.

C.  Reduction of Social Security benefits and ZUS because of employment

1. Recipients of retirements of the Social Security below the full retirement age will be 

    deducted  $ 1 of a pension for every $ 2 earned in the US over the limit of $ 15.720 ( year 

    2016 ) . In the year of completion of full retirement age they will be deducted $ 1 for every $ 3 

    of earnings over $ 41.880.
    Warning: if you have worked 45 hours or more in a month outside the US your Soc . Sec. 

                      will be suspended.

2. Recipients of the ZUS pension below the full retirement age have benefits reduced if their

    earnings exceed 70 % of the average monthly salary in Poland and suspended if they earn 

     more than 130 % of the average wage. 

D.  How to receive spousal benefits free

Call your local Soc. Sec. office and arrange a meeting on the "spousal benefits" (bring: passports or permanent resident cards and marriage certificate). Should the clerk not be familiar with these benefits, ask for a manager. You state that you choose to limit yourself temporarily to the amount which is equal to a part of your spouse’s benefits (and depends on your age) until such time as you decide to switch to your Soc. Sec. For a spouse who has reached full retirement age (min. 66) request a "Restricted spousal application". In the interim, the applying spouse pension will grow 8% per year (even if not working). At age 70, the applying spouse must take their own Soc. Sec. benefits.

Note: The budget law of 2015 eliminates the “restricted spousal application” for people born after January 1954 year. Also the option of "file and suspend" will end April 29, 2016 r. Read about it in: http://www.clarkhoward.com/new-laws-that-will-affect-social-security

Note: spousal pension is available for wives and husbands, even if he/she lives in Poland and never visited the US , but the spouse worked in the US and receives Social Security benefits.