Portugal taxes its residents on worldwide income, so a US retirement payment becomes Portuguese income in the year residence begins. The 1994 treaty then decides which country taxes what. US Social Security goes one way, a private pension or a 401(k) payout another, and a Roth account is not mentioned in the treaty at all.
The convention was signed in Washington on 6 September 1994 and has applied to most income since 1 January 1996. Its retirement provisions come to one article on pensions and annuities, Article 20, and one on government service, Article 21. What settles the outcome for an American is which parts of those articles survive the saving clause in the Protocol. The table sets out the result.
| Income | Treaty provision | Survives the saving clause? | Result for a US citizen resident in Portugal |
|---|---|---|---|
| US Social Security | Art. 20(1)(b) | Yes — Protocol 1(c)(i) | The United States may tax it; Portugal taxes it as category H and credits the US tax under Art. 25(3)(a) |
| Private pension or 401(k) payout | Art. 20(1)(a) | No | Portugal taxes it as the country of residence and the United States taxes it as well; Art. 25(2) re-sources it for the credit |
| Traditional IRA distribution | Not named; Art. 20 or Art. 24 | No | A lump sum is not an annuity under Art. 20(2); if Art. 24 applies, both countries may tax US-source income |
| Roth IRA distribution | Not addressed anywhere in the treaty | Not applicable | The treaty settles nothing; classification falls to Portuguese domestic law |
| US federal, state or military pension | Art. 21(2)(a) | Only for a person who is not a citizen of, and has no immigrant status in, the State conferring it | Taxable only in the United States, unless the retiree is both resident and a Portuguese national |
Does Portugal tax US Social Security?
Portugal can. Article 20(1)(b) says that social security benefits and other public pensions paid by one country to a resident of the other, or to a citizen of the United States, “may be taxed in the first-mentioned State”. That gives the United States the right to tax. It does not say that only the United States may tax, and the contrast with Article 20(1)(a) — which says private pensions “shall be taxable only” in the country of residence — sits on the face of the text.
That is not the same as untaxed on the US side. Section 86 of the Internal Revenue Code brings up to 85% of benefits into gross income once the taxpayer passes the adjusted base amount. The statute sets the base amount at $25,000 for a single filer and $32,000 on a joint return, and the adjusted base amount at $34,000 and $44,000.
Portuguese law then reaches the benefit. Article 15 of the Código do IRS taxes residents on the whole of their income, including income obtained outside Portuguese territory, and Article 11 puts pensions for retirement, old age, invalidity and survivorship into category H. Where both countries tax, Article 25(3)(a) requires Portugal to allow a deduction equal to the US income tax, capped at the part of the Portuguese tax attributable to that income. The relief is a credit, not an exemption.
Who taxes a 401(k) or private pension paid to an American in Portugal?
Both countries, for a US citizen. Article 20(1)(a) makes pensions and other similar remuneration paid in consideration of past employment taxable only in the country where the recipient lives, which for a retiree in Portugal means Portugal alone. That rule is one of the provisions the saving clause overrides.
Paragraph 1(b) of the Protocol lets a Contracting State tax its residents, and the United States tax its citizens, “as if the Convention had not come into effect”. Paragraph 1(c) then lists what the saving clause cannot touch. Article 20(1)(b) and Article 20(4) are on that list, alongside Articles 25, 26 and 27. Article 20(1)(a) is not. A US citizen therefore pays Portuguese tax on the pension as a resident and US tax on the same payment as a citizen.
Article 25(2) keeps that from becoming double tax. For an individual who is a citizen of the United States and a resident of Portugal, income the United States may tax solely by reason of citizenship is deemed to arise in Portugal to the extent necessary to avoid double taxation.
What does the treaty say about IRAs and Roth accounts?
Nothing by name. The convention carries no definition of a pension scheme, no provision on income accruing inside a retirement account, and no mention of an IRA or a Roth. Article 20(1)(a) covers payments made “in consideration of past employment”, which is not a description of an account funded by an individual’s own contributions.
Article 20(2) does not obviously close the gap. It defines an annuity as a stated sum paid periodically at stated times during a specific time period, in return for adequate and full consideration other than services rendered. A lump sum drawn from an IRA is not that. Where neither paragraph applies, Article 24 takes over: income not dealt with in the foregoing articles is taxable only in the country of residence unless it arises in the other country, in which case it may also be taxed there. A US-source payment falls in the second half of that sentence.
None of that decides how Portugal classifies a Roth distribution. Article 11 of the Código do IRS brings payments from pension funds and from complementary retirement schemes into category H, and states that early or advance access does not change the classification. Whether a Roth account is such a scheme for Portuguese purposes is not settled by the treaty text.
How are US government and military pensions treated?
Taxable only in the United States, in the ordinary case. Article 21(2)(a) makes a pension paid by a Contracting State, or out of funds created by it, in respect of services rendered to that State taxable only in that State. The single exception in the text is an individual who is both a resident and a national of the other country, whose pension is then taxable only there.
The Protocol adds a condition. Paragraph 1(c)(ii) carries the Article 21 result past the saving clause only for individuals who are “neither citizens of, nor have immigrant status in” the State conferring the benefit. An American holding a Portuguese residence permit is the case that wording leaves open.
Does IFICI cut the tax on a foreign pension?
It does not. IFICI, the incentive for scientific research and innovation in Article 58.º-A of the Estatuto dos Benefícios Fiscais, gives a special IRS rate of 20% on category A and B income for qualifying new residents. Article 81(4) of the Código do IRS applies the exemption method to foreign-source income in categories A, B, E, F and G. Category H, pensions, is not on that list, and the tax authority states the general rule as exemption “except in the case of category H income”.
The regime is also dated. The tax authority states that the application must be made by 15 January of the year following the year in which the person becomes resident in Portuguese territory, under Article 58.º-A and Portaria n.º 352/2024/1 of 23 December. A retiree whose income is a pension gains nothing from it even where the application succeeds.
When does Portugal treat an American retiree as a tax resident?
After more than 183 days, or sooner on a home kept with the intention of keeping it. Article 16(1) of the Código do IRS treats as resident a person who spends more than 183 days, consecutive or not, in Portugal in any twelve-month period, and also a person who spends less time but has a dwelling there on any day of that period in conditions suggesting a current intention to keep it as a habitual residence.
Residence is what switches on Article 15. From that point IRS falls on the whole of the person’s income, including income obtained outside Portuguese territory, and the US retirement payments sit inside the Portuguese base for the first time.
Can the foreign earned income exclusion cover a pension?
No. The IRS states that “pension or annuity payments including social security benefits” are not foreign earned income, which puts every kind of retirement payment outside section 911 altogether. The exclusion amount for taxable years beginning in 2026, set by Revenue Procedure 2025-32, is $132,900, and none of it reaches a pension, a 401(k) payout or a Social Security benefit.
That is where a Portuguese retirement parts company with a Portuguese salary. The exclusion is what carries a working American through a high-tax country; a retiree does not have it, and works with the credit instead.
How does the foreign tax credit work on this income?
It runs in both directions, depending on which country taxes first. Where Portugal taxes as the country of residence — a private pension, a 401(k) payout — the United States credits the Portuguese tax, and Article 25(2) deems the income to arise in Portugal so the credit has foreign-source income to sit against. Without that re-sourcing the payment stays US-source and there is nothing to credit against.
The mechanics have a carve-out worth knowing. The Form 1116 instructions require a separate credit limitation, on a separate form, for each amount of income re-sourced by treaty, and then state that the rule “doesn’t apply to income that is re-sourced by reason of the relief from double taxation rules in any U.S. income tax treaty that is solely applicable to U.S. citizens who are residents of the foreign treaty country”. Article 25(2) is such a rule, applying only to a US citizen resident in Portugal.
Where the United States taxes as the paying State — Social Security — the credit runs the other way, and Portugal gives it. The exclusion in Article 25(3)(a) for income taxed “solely by reason of citizenship” does not bite, because Article 20(1)(b) gives the United States a right founded on the source of the payment rather than on the nationality of the recipient.
Sources
- IRS — Convention between the United States of America and the Portuguese Republic for the avoidance of double taxation, with Protocol, signed 6 September 1994, Articles 20, 21, 24 and 25 and Protocol paragraph 1 — https://www.irs.gov/pub/irs-trty/portugal.pdf — checked 23 September 2026
- Autoridade Tributária e Aduaneira — Código do IRS, artigo 15.º, Âmbito da sujeição — https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs15.aspx — checked 23 September 2026
- Autoridade Tributária e Aduaneira — Código do IRS, artigo 16.º, Residência — https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs16.aspx — checked 23 September 2026
- Autoridade Tributária e Aduaneira — Código do IRS, artigo 11.º, Rendimentos da categoria H — https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs11.aspx — checked 23 September 2026
- Autoridade Tributária e Aduaneira — Código do IRS, artigo 81.º, Eliminação da dupla tributação jurídica internacional — https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs81.aspx — checked 23 September 2026
- Autoridade Tributária e Aduaneira — Estatuto dos Benefícios Fiscais, artigo 58.º-A, Incentivo fiscal à investigação científica e inovação — https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/bf_rep/Pages/EBF58A.aspx — checked 23 September 2026
- Autoridade Tributária e Aduaneira — Questões frequentes, IFICI — https://info.portaldasfinancas.gov.pt/pt/apoio_contribuinte/questoes_frequentes/pages/faqs-01018.aspx — checked 23 September 2026
- IRS — Foreign earned income exclusion: what is foreign earned income — https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-what-is-foreign-earned-income — checked 23 September 2026
- IRS — Revenue Procedure 2025-32, section 4.39, foreign earned income exclusion for 2026 — https://www.irs.gov/pub/irs-drop/rp-25-32.pdf — checked 23 September 2026
- IRS — Instructions for Form 1116, Foreign Tax Credit, certain income re-sourced by treaty — https://www.irs.gov/instructions/i1116 — checked 23 September 2026
- US Government Publishing Office — 26 U.S.C. 86, Social security and tier 1 railroad retirement benefits — https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapB-partII-sec86.htm — checked 23 September 2026
Common questions
- Does Portugal tax my US Social Security?
- Portugal can. Article 20(1)(b) says the benefit may be taxed in the country paying it, which is the United States. It does not say that only that country may tax. Portugal taxes residents on worldwide income under Article 15 of the Código do IRS and treats the benefit as category H, then credits the US tax under Article 25(3)(a).
- Is a 401(k) payout taxed twice if I retire in Portugal?
- It is taxed by both countries, then relieved. Article 20(1)(a) gives Portugal the sole right as the country of residence, but that paragraph is not on the Protocol’s list of provisions the saving clause cannot touch, so the United States taxes its citizen anyway. Article 25(2) deems the income to arise in Portugal so the foreign tax credit works.
- Does the treaty say anything about a Roth IRA?
- Not a word. The convention carries no definition of a pension scheme, no provision on income accruing inside a retirement account, and no mention of an IRA or a Roth. Article 11 of the Código do IRS brings pension fund and complementary scheme payments into category H, but whether a Roth is such a scheme is not settled by the treaty text.
- I have a US federal pension — does Portugal get to tax it?
- In the ordinary case, no. Article 21(2)(a) makes a pension paid by a State in respect of services rendered to it taxable only in that State. The stated exception is a retiree who is both resident in Portugal and a Portuguese national. The Protocol carries that result past the saving clause only for a person with no immigrant status in the State conferring it.
- Can the foreign earned income exclusion cover my pension?
- No. The IRS states that pension or annuity payments, including social security benefits, are not foreign earned income, which places every retirement payment outside section 911. The exclusion for 2026, set by Revenue Procedure 2025-32, is $132,900, and none of it reaches a pension, a 401(k) payout or a Social Security benefit. The credit does the work instead.
- Will IFICI reduce the tax on my foreign pension?
- No. Article 81(4) of the Código do IRS applies the IFICI exemption method to foreign income in categories A, B, E, F and G. Category H, pensions, is absent, and the tax authority states the rule as exemption except in the case of category H income. The special 20% rate applies to category A and B income, not to a pension.
- How long can I stay in Portugal before I become a tax resident?
- More than 183 days in any twelve-month period makes a person resident under Article 16(1) of the Código do IRS, whether the days run together or not. Residence switches on Article 15, and from that point IRS falls on the whole of the person’s income, including income obtained outside Portuguese territory.
- What if I spend only four months a year in Portugal but keep an apartment there?
- The day count is not the only test. Article 16(1) also treats as resident a person who spends less time but has a dwelling in Portugal on any day of that period, in conditions suggesting a current intention to keep it as a habitual residence. Four months plus a kept home can therefore reach residence.
- Who gives the foreign tax credit, the IRS or Portugal?
- Both, depending on which country taxes first. Where Portugal taxes a private pension as the country of residence, the United States credits the Portuguese tax. Where the United States taxes Social Security as the paying State, Portugal gives the credit under Article 25(3)(a), capped at the part of the Portuguese tax attributable to that income.
- Do I need a separate Form 1116 for income re-sourced by the Portugal treaty?
- Not for this kind. The instructions require a separate credit limitation on a separate form for each amount of treaty re-sourced income, then carve out income re-sourced by relief from double taxation rules that apply solely to US citizens resident in the treaty country. Article 25(2) is such a rule, so the carve-out covers it.
- Is a lump sum from a traditional IRA an annuity under the treaty?
- It does not fit the definition. Article 20(2) describes an annuity as a stated sum paid periodically at stated times during a specific time period, in return for adequate and full consideration other than services rendered. A single withdrawal is not that. Where no paragraph of Article 20 applies, Article 24 lets both countries tax US-source income.
A note on tax content
Tax content on this site is for general informational purposes only and does not constitute tax advice. Rules for U.S. citizens abroad depend on individual circumstances, country of residence, income sources, account structures, and applicable treaties — always consult a qualified tax professional in the relevant jurisdiction before making decisions.
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