Do Expats Have to Pay Income Taxes in Ecuador on U.S. Social Security Benefits?

by Tom Streissguth, Demand Media
    Ecuadorean expatriates can avoid U.S. tax trauma, with some conditions.

    Ecuadorean expatriates can avoid U.S. tax trauma, with some conditions.

    If you're transferring or retiring to Ecuador, study up on the tax implications of your move. In this small South American nation, the news for U.S. Social Security beneficiaries is pretty good: in principle, any income earned from outside the country is free of Ecuadorean income tax. However, just living abroad won't get you an exemption from U.S. income tax, on ordinary wages or Social Security income.

    Taxes in Ecuador

    The Ecuadorean income tax rates range from 5 percent to 35 percent, depending on your income level. The first $8,750 of income is exempt as well. However, in principle any income you earn from foreign sources while living in Ecuador is free of income tax, and Ecuador has no foreign income reporting requirement. This would exempt salary you're earning while in Ecuador from a foreign company, as well as your Social Security benefits.

    Social Security Payments

    Social Security places no restriction on the payment of retirement or disability benefits if you live in Ecuador or in most other foreign countries. You remain entitled to the full benefit you earned by working and paying into the system through payroll taxes. All benefits are paid via direct deposit into your bank account or with a pre-paid debit card known as DirectExpress. However, if you draw Supplemental Security Income, the benefit stops when you move overseas. SSI benefits are payable only to residents of the United States and its territories.

    Payable Taxes and Exemptions

    As far as income taxes go, the IRS gives no special consideration to world travelers. If you are a U.S. citizen or resident alien, you pay taxes on your U.S. income no matter where you move. If you live abroad for 330 consecutive days in 12 consecutive months, however, the IRS allows you to exempt money you earn from the foreign country. This won't include Social Security benefits, which originate in the United States.

    Tax Thresholds and Withholding

    Your Social Security benefit is subject to income tax depending on how much you earn in "combined income," an IRS term for half of your Social Security benefits added to wages, tax-free interest and other income. If you're single, combined income of less than $25,000 means no tax on your Social Security benefits. The same threshold for taxpayers filing a joint return is $32,000. For those married but filing separately it is $0 -- all Social Security benefits will be taxed. This is in addition to taxes you must pay on wages, interest, dividends and other income. If you owe taxes on your benefits, you can make the bite a little less painful by asking the Social Security Administration to withhold income taxes from your monthly benefits.

    About the Author

    Tom Streissguth has authored more than 100 books for the school and library market, including works for the Gale, Enslow, Facts on File and Lerner Publications. He is the founder of The Archive, an independent publisher of historical journalism collections, and holds a Bachelor of Arts from Yale University.

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