Does Spain Tax US Retirement Income?

For United States citizens considering retirement in Spain, understanding the tax implications is a primary concern. The process involves navigating Spain’s tax system while remaining compliant with U.S. filing obligations. How your American retirement income is taxed depends on your tax residency status in Spain and the rules within the US-Spain Tax Treaty. These elements determine which country can tax each portion of your retirement funds, from Social Security to private pensions.

Determining Spanish Tax Residency

The primary test for tax residency is physical presence. If you spend more than 183 days in Spain during a calendar year, you are considered a tax resident for that year. These days do not need to be consecutive, and temporary absences may count toward the total unless you can prove tax residency elsewhere.

Beyond the 183-day rule, Spain also considers your “center of vital interests.” This applies if your main professional activities or the bulk of your assets are in Spain. Similarly, if your spouse and dependent minor children reside in Spain, the law presumes you are also a resident, even if you spend less than 183 days in the country.

Under Spanish law, you are classified as either a resident or a non-resident for the entire calendar year. This distinction dictates whether you are taxed on only your Spanish-source income or on your global income, including all U.S. retirement distributions.

How the US-Spain Tax Treaty Governs Retirement Income

The US-Spain Tax Treaty is an agreement designed to prevent income from being taxed by both countries. It assigns taxing rights for different types of income to either the “source” country, where the income originates, or the “residence” country. The treaty’s provisions vary depending on the specific type of retirement income.

Social Security Benefits

Under the US-Spain Tax Treaty, Social Security payments are taxable in the country where the recipient resides. Therefore, if you are a tax resident of Spain, your U.S. Social Security benefits are subject to Spanish income tax. Consequently, these benefits are exempt from U.S. income tax. The Spanish tax system classifies these benefits as a form of pension income.

Private Pensions and Annuities

This category includes distributions from private retirement savings common in the U.S., such as:

• 401(k)s
• Traditional IRAs
• Roth IRAs
• Private company pensions
• Annuities

The tax treaty grants the country of residence the exclusive right to tax this income. A distinction applies to Roth IRAs; the portion of a withdrawal representing your original contributions is not taxed by Spain, but the investment gains are subject to tax as savings income (renta del ahorro).

Government Pensions

An exception within the treaty applies to pensions for past government service. Pensions paid by the U.S. government for services rendered to that body are generally taxable only by the United States. This rule covers payments like U.S. federal civil service retirement pensions and is a direct contrast to how private pensions and Social Security are handled.

Calculating Spanish Income Tax on US Retirement Funds

Spain’s personal income tax, Impuesto sobre la Renta de las Personas Físicas (IRPF), divides income into two main categories: savings income (renta del ahorro) and general income (renta general). Most U.S. retirement income, including Social Security, 401(k) distributions, and private pensions, is classified as general income.

General income is taxed at progressive rates combining national and regional tax brackets. While rates vary by autonomous community, the national scale is a reliable guide. For the 2025 tax year, the general income tax rates are:

• 19% on income up to €12,450
• 24% on income from €12,451 to €20,200
• 30% on income from €20,201 to €35,200
• 37% on income from €35,201 to €60,000

The rates continue to rise for higher earners.

For example, a retiree with €30,000 in taxable U.S. pension income would see their tax calculated in tiers. The first €12,450 would be taxed at 19% (€2,365.50). The next €7,750 (from €12,451 to €20,200) would be taxed at 24% (€1,860). The remaining €9,800 (from €20,201 to €30,000) would be taxed at 30% (€2,940).

The other income category, savings income, applies to interest, dividends, capital gains, and the earnings portion of Roth IRA distributions. It is taxed at its own set of progressive rates, starting at 19% for the first €6,000.

US Filing Obligations and Preventing Double Taxation

U.S. citizens must file a U.S. federal income tax return each year reporting their worldwide income, even while living in Spain. The primary mechanism to prevent double taxation is the Foreign Tax Credit (FTC). The FTC reduces your U.S. income tax liability on a dollar-for-dollar basis for income taxes you have paid to Spain.

To claim the credit, you must file IRS Form 1116. This form calculates the foreign tax paid on your foreign-source income and determines the maximum credit you can claim. The credit is limited to the amount of U.S. tax you would have owed on that same income. For instance, if you paid €5,000 in Spanish tax on your pension but your U.S. tax liability on that pension was only $4,000, your credit would be capped at $4,000.

Any unused foreign tax credit is not lost. The IRS allows you to carry the excess credit back one tax year or forward for up to ten years.

Spanish Wealth and Foreign Asset Reporting Requirements

Beyond income tax, U.S. retirees in Spain have two other reporting obligations: a wealth tax and a foreign asset declaration. The Spanish Wealth Tax, Impuesto sobre el Patrimonio, is an annual tax on an individual’s worldwide net assets. This tax applies only to those with substantial wealth, as there is a tax-free allowance of €700,000 per person, plus an additional exemption of up to €300,000 for a primary residence in Spain.

A separate requirement is the Foreign Asset Declaration, Modelo 720. This is an informational filing, not a tax. Spanish tax residents must file Modelo 720 if the total value of their assets in any of three foreign categories—bank accounts, investments, or real estate—exceeds €50,000. For example, if you have U.S. bank accounts totaling over €50,000, you must report all of those accounts.

Once a category of assets is reported, you do not need to file again unless its value increases by more than €20,000, you acquire a new asset, or you close a previously reported asset. The deadline for filing Modelo 720 is March 31st of the following year, and the penalties for failing to file or filing incorrectly can be substantial.