Are you a retired US citizen living in France?
What You Need to Know….
Many US citizen retirees living in France are surprised to learn that the US often continues to tax their US retirement income, whereas France generally does not.
Under the US–France Income Tax Treaty, the United States generally retains primary taxing rights on US-source retirement income, including:
- 401(k) and IRA distributions
- US Social Security benefits
However, the income tax treaty also helps avoid double taxation by restricting France from taxing US source retirement income.
SmileTax Tip: US citizen retirees living in France should review their federal tax withholding on retirement distributions and Social Security benefits to ensure it adequately covers their US tax liability and helps prevent underpayment penalties.
Some Good News: A New Senior Deduction Applies from 2025-2028
There is, however, some genuinely positive news for US retirees.
Recent changes to the US tax rules introduced a new senior deduction of $6,000, specifically aimed at taxpayers aged 65 and over. The deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers). The taxpayer must be 65 on the last day of the tax year. The deduction is allowed for all eligible taxpayers regardless if they claim the standard deduction or itemized deductions.
For many US retirees based in France, the additional deduction will result in lower US taxable income and a reduced or eliminated federal tax liability. While this deduction won’t eliminate federal taxes for everyone, it can make a meaningful difference.
Why This Matters…..
Correctly reporting income across two tax systems is complex. Failure to understand the interaction between the two tax systems can result in underreported/overreported income, missed deductions and credits, and ultimating paying an incorrect tax liability. Penalties may also apply.