Where a Treaty Can Still Matter
1. Pensions and the Saving Clause
What it says: In the US-UK treaty, Article 18 makes pensions and annuities paid to a resident of one country taxable only in that country. The Treasury technical explanation adds that the article is subject to the saving clause, so the US may tax its own nationals on a pension without regard to that article. In the US-Australia treaty, Article 18 also gives private pensions to the country of residence, and the exception to the saving clause there covers Social Security and public pensions (paragraph 2).
What it means: For a US citizen, a residence-only rule on a private pension often does not remove US tax. The treaty is more likely to matter to someone who is not a US citizen or green card holder.
What to do: Read your treaty's pension article and its saving clause exceptions before assuming a pension is exempt. Foreign tax paid on the pension may still be creditable on your US return.
2. Social Security and Public Pensions
What it says: Many treaties give the paying country the exclusive right to tax Social Security and public pensions. The US-Australia treaty (Article 18) says Social Security and public pensions paid by one country to a resident of the other, or to a US citizen, are taxable only in the paying country, and that rule is excepted from the saving clause. The US-Philippines treaty (Article 19) likewise gives the paying country the exclusive right. Not every treaty works this way: in the US-UK treaty, Social Security falls outside the pension article and is covered by the Other Income article.
What it means: US Social Security paid to an American abroad is generally taxed only by the US, and Australian or Philippine payments only by Australia or the Philippines. A treaty does not usually make US Social Security tax-free for a US citizen. How much of the benefit the US taxes is worked out under US domestic rules.
What to do: Check which country your treaty gives taxing rights to, and whether your payments come from that country.
3. Residence Tie-Breakers and Double Tax Relief
What it says: Only a resident of a treaty country can claim the treaty's benefits, and residence is decided under each country's own tax law, not by citizenship alone. If both countries treat you as a resident, the treaty's tie-breaker decides. In the US-UK treaty it looks, in order, at your permanent home, your centre of vital interests, your habitual abode, and then your nationality. The saving clause in that treaty also leaves the article on elimination of double taxation (Article 23) untouched.
What it means: Residence and double tax relief are where treaties most often help Americans abroad, more than headline exemptions. Treaty residence can decide which country gets primary taxing rights over your income.
What to do: Work out your residence under both countries' rules before relying on a treaty position, and keep records of your home, ties and days in each country.