My mother is 78 years old. She has been a US permanent resident for 17 years. In the past, she has not qualified for filing a tax return because her only sources of income are from interest earned in her savings account, which did not reach the minimum amount for filing taxes. This last December 2007, she received a lump sum from Italy's Social Security Administration, for back payments owed by the Italian government for a pension my father (deceased) had in Italy as an Italian citizen and worker. My mother will continue to receive a social security pension from Italy on a monthly basis. The lump sum in social security benefits was taxed in Italy, as will the future monthly payments.

I am trying to figure out how to treat this lump sum in her 2007 tax return, but I am not sure how to do this. Does it need to be declared? If so, how? How can double taxation be avoided, since taxes are already deducted in Italy for all her pension payments? What forms does she need to file?

I would appreciate the answers to these questions.

Thank you very much!

1. A part of the social security benefits (includes social security disability but excludes SSI payments) may be taxable, if the total of:
*One-half of your benefits, plus
*All your other income, including tax-exempt interest
Is more than the base amount for your filing status. For single the base amount is: $25,000.

2. Assuming your mother's income (as in 1 above) is more than $25,000, and she has to file tax return. Then she will also file Form 1116 to get credit for taxes paid in Italy. And, this will reduce the U.S. tax to 0 or a very low amount.

Under the U.S.-Italy Income Tax Treaty, your mother should only be taxed in the U.S. on the social security income and not in Italy. She can likely file a tax return in Italy and get a refund of the Italian taxes. If she can get a refund of the Italian taxes, but for whatever reason she does not seek the refund, she will not be able to claim the Italian taxes as foreign tax credits. Paragraph 14 of Article 1 of the Protocol to the treaty provides that social security benefits and similar public pensions not covered by Article 19 are covered by paragraph 1 of Article 18 of the treaty. Thus, social security benefits derived by your mother, a resident of the U.S. are taxable only in the U.S.

Thank you, MukatA and IntlTax. I appreciate your answers, but I am still confused as what to do.

If she has to file, how does she declare the Social Security benefits paid by Italy in the 1040 form if she does not have any of the forms (SSA-1099) required to be reported? Also, what amount does she include? The total she received excluding the taxes she already paid, or the total she was entitled to?

Thanks again for providing further clarification for my initial questions!

Hi, I have a similar problem as chucho7. I receive ss payments from Germany and do not have to pay taxes there but in the US, I was told. How do I declare taxes in the US on this ss income... do I have to find this out or should the US gov. tell me? According to 5th amendment I think I don't have to find out myself? Do you have some advice?

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Originally Posted by chucho7

Thank you, MukatA and IntlTax. I appreciate your answers, but I am still confused as what to do.

If she has to file, how does she declare the Social Security benefits paid by Italy in the 1040 form if she does not have any of the forms (SSA-1099) required to be reported? Also, what amount does she include? The total she received excluding the taxes she already paid, or the total she was entitled to?

Thanks again for providing further clarification for my initial questions!

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The amount your mother received in 2007 may be inheritance, which is not taxable in the U.S.
Also you should check with IntlTax. It appears that your mother is not required to file the tax return.