biscuitbob

Hi all, I'm a long-time reader, first-time poster, hoping someone can help with a tax question!

I'm getting to grips with our first tax return since moving to the US (in May 2016). Think I've grasped most of it, except how to deal with the contributions I made to my UK pension.

When reporting my gross UK income, would I report this before deductions for pensions contributions (ie. gross)? And if so, am I able to deduct the pension contributon amount elsewhere in the return (eg. as an above-the-line deduction, or as a credit somewhere?).

It seems like I should be able to exclude them as we get them tax-free in the UK, it would be annoying to now have to pay tax on them now! I read that the IRS allows deductions to 'traditional IRAs' as an above-the-line deduction - but I'm unsure if this applies to UK pensions in the same way.

If it helps, we're probably electing to do a full-year return rather than being dual-status, as my calculation suggest that'll be better for us, but either way I'd have some UK income from which there had been pension deductions.

It's been strangely hard to find info on this so I'd appreciate any help!
Thanks,
Aimee

nun

You can handle UK employer and employee pension contributions in two ways.

1) Use Article 18.2 of the tax treaty to exclude the contributions from US tax
and Article 18.1 to exclude tax on gains.

or

2) Declare yours and your employer's contributions to the UK pension as US taxable income and pay the tax thus building a US tax free basis. UK FTCs might cover that tax......and claim Article 18.1 to avoid current tax on the gains.

AmanSood

Hi Aimee, it really depends on the type of UK pension scheme and whether these would be treated as a "qualified" pension scheme in the US. An alternative if you are resident in both the UK/US for the relevant period, then the treaty would allow you to treat the pension contributions as exempt but capped to the relief available under the local US tax rules. It's not straightforward and would advise you to get professional advice.

biscuitbob

Thanks for the info so far!

If it makes a difference, it's a Civil Service pension scheme, defined benefit.

Amansood - I am an accountant so I prefer to try and understand and deal with these things myself if I can, although I appreciate it is a complicated topic!

nun

OK so that is a UK Government pension. You can follow either of the approaches I mentioned. As already mentioned if you choose option 1) you can only exclude up to the IRS limits.

Cook_County

So it is going to be a highly valuable plan and is also reportable on your 8938.

biscuitbob

Thanks everyone for your comments so far, it's really helpful.

One more question - if I am using Article 18.2 to exclude the value of contributions from my US tax, do you know where exactly I would do that on the tax forms themselves?

Thanks for the info on including it on the 8938 too, I had only recently found out about this requirement on these forums!

nun

To claim a treaty exemption you file form 8833...However, it's not usually required for pensions. Here is a nice summary in plain language.

Tax Implications of Foreign Pension Plan Participation

biscuitbob

That's really helpful, thanks so much usually an internet search answers most of my tax questions but it was frustratingly difficult to find answers on this, so you've been a huge help.