Do US Retirees Have to Pay Taxes in Spain?

“As an American retiree considering moving to Spain, you’re probably wondering: Will I have to pay taxes to two countries?”

The short answer is: Yes, you will always have U.S. filing obligations, but the U.S.-Spain Tax Treaty (DTC) prevents double taxation on most income. Because the U.S. taxes its citizens on their worldwide income regardless of where they live, you will always have a U.S. filing requirement. However, your Spanish tax obligations—and how you avoid double taxation—are defined by your residency.

🔑 Key Takeaways: US Retirees Taxes in Spain

• ✔️ Double Taxation is Avoidable: The US-Spain tax treaty prevents you from being taxed twice on the same income, but you must understand how to apply it correctly.
• ✔️ Residency is Everything: Your tax obligations hinge on whether Spain considers you a tax resident (typically 183+ days per year).
• ✔️ Social Security is (Mostly) Safe: Your US Social Security payments are only taxable in the United States, not by Spain.
• ✔️ IRS Follows You Everywhere: As a US citizen, you must file a US tax return annually, regardless of where you live in the world.
• ✔️ Reporting is Mandatory: Be prepared for additional paperwork like the FBAR (FinCEN 114) if your foreign bank accounts exceed $10,000 at any point in the year.
• ✔️ Professional Advice is Key: The complexity of cross-border tax law makes consulting with a qualified international tax advisor highly recommended.

Here’s exactly how US citizens are taxed in retirement in Spain: Tax optimization strategies

🔵 The Key Concept – Tax Residency

Tax residency is the single most important factor that determines your tax liability in Spain. It is a question of fact, not of immigration status (a visa/residence card does not automatically make you a tax resident).

What Determines if You’re a Tax Resident in Spain?

You are considered a Spanish tax resident if you meet any of the following criteria within a single calendar year (January 1 to December 31):

• The 183-Day Rule: You spend more than 183 days in Spanish territory during the calendar year. These days do not need to be consecutive, and temporary absences are counted as days in Spain unless you can prove tax residency in another country.
• Center of Vital Interests (Economic): The main core or base of your economic interests is located in Spain (e.g., the primary source of your income or wealth is here).
• Family Presumption (Personal): Your non-legally separated spouse and/or dependent minor children habitually reside in Spain. This creates a legal presumption that you are also a tax resident.

🔵 Scenario 1 – You ARE a Tax Resident in Spain

If you meet any of the three criteria above, you are a Spanish tax resident.

Worldwide Income Principle: Spain Taxes Your Global Income

Spain’s progressive tax system (IRPF) taxes your worldwide income. This means you must report all your income to the Spanish Tax Agency (Agencia Tributaria), including:

• Distributions from US retirement plans (IRAs, 401(k)s, Roth IRAs).
• US Social Security benefits.
• Investment income (dividends, interest, capital gains) from US accounts.
• Rental income from US properties.

U.S.-Spain Tax Treaty: Taxation of Retirement Income

The U.S.-Spain Double Taxation Treaty (DTC) is crucial for retirees, as it determines which country has the primary right to tax specific income streams. A deep knowledge of the Tax Treaty is vital to implement Financial planning for retirees.

Exemption with Progression: U.S. Social Security and U.S. Government pensions, though exempt from Spanish tax, are included in your income calculation to determine the tax rate applied to your other Spanish-taxable income (e.g., private pension withdrawals, investment income). This may result in a higher tax bracket for your taxable income.

U.S. Filing Requirement: The Saving Clause

Due to a “Saving Clause” in the DTC, the U.S. reserves the right to tax its citizens as if the treaty did not exist. This is why you must always file a U.S. tax return (Form 1040), even if you eliminate your U.S. tax liability.

• Relief on Your U.S. Return: The primary mechanism for relief is the Foreign Tax Credit (FTC) on IRS Form 1116. This allows you to claim a dollar-for-dollar credit for income taxes paid to Spain against your U.S. tax liability. Since Spanish tax rates are often higher, the FTC typically eliminates any U.S. tax due.

Key Filings: FBAR, FATCA, and the Crucial Modelo 720

In addition to filing your U.S. tax return, US citizens in Spain must comply with both US and Spanish reporting requirements:

• Wealth Tax: Spain levies an annual Wealth Tax on a resident’s worldwide net assets above certain thresholds (€700,000 national minimum exemption, varying greatly by region). US retirement funds (IRAs, 401(k)s) are generally included in this calculation once they are accessible (typically after age 59½).

🔵 Scenario 2 – You are NOT a Resident

If you do not meet any of the residency criteria (e.g., you stay less than 183 days a year), you are a non-resident for Spanish tax purposes.

• Tax Liability: You are only liable to pay tax in Spain on income that is earned within Spanish territory.
• Tax Form: This tax is called Non-Resident Income Tax (Impuesto sobre la Renta de No Residentes – IRNR). The rate is a flat 24% (19% for EU/EEA citizens) on gross Spanish-sourced income.
• Deemed Income: If you own Spanish real estate and do not rent it out, you must still pay IRNR annually on a deemed income calculated based on the property’s cadastral value: Estate planning in Spain.

💰 Retirement and Investment Planning

U.S. retirement and savings accounts require specific, tricky compliance in Spain.