Hawkslayer

Hi,

I've been a LPR for three years living in Georgia and I need to ask a question about taxes. I have income from three pensions in the UK which is taxed in UK.

I also receive survivorship Social Security in the USA from my late wife's account.

My CPA, who I have just seen, insists that I have to pay taxes on my UK income and I'm sure that he is wrong on this.

Can someone please confirm for me whether I should pay taxes on my UK income? Thanks.

Hawkslayer. :curse:

meauxna

Are your pensions from government service?




I'm pretty sure the CPA is wrong too.

Ray

Read the Q & A

http://www.americantaxhelp.com/faq.html

Hawkslayer

I get two pensions from my time working in coal mining. The other pension is the UK state pension which everyone over 65 gets.

Hawkslayer

Thanks for the link. I looked at this and it seems to be saying we do have declare our income, and can get a credit for taxes paid in the UK. But the different clauses in there make it pretty complicated for a layman to understand, don't you think?

ian-mstm

In a nutshell, the UK/US tax treaty prevents double taxation. You are obligated to report your worldwide income, but you are not obligated to pay US tax on income from the UK *if* that income has already been taxed. Of course, if the income hasn't been taxed, then you may need to pony up. There are, of course, exemptions for income that is not-taxable. Basically, and in addition to your US income, you declare your worldwide income at the beginning of your return, and subtract it out before the end. Ask your CPA if he has specific experience with the UK/US tax treaty. If not, you may need to find someone else, or be sure he becomes familiar with it before continuing.

Ian

meauxna

Yes, they don't mean for us mere mortals to understand it easily...
http://www.irs.gov/pub/irs-pdf/p514.pdf

Ian sums up my understanding of the same. The pension we're dealing with is a little bit different, but I also want to underscore something Ian said--if your CPA doesn't know what he's doing (even if he tells you differently) be prepared to learn it yourself and file an amended return or be aware of the option for asking for an extension.
The first year sucks, and so do accountants who tell you they know what they're talking about when they don't (happened to us too).

Hawkslayer

I want to thank you all for your suggestions. It seems that you all think like I do and that I shouldn't be paying tax in the USA on income that has already been taxed at source in the UK.

Next year I intend going to a different CPA and see what he/she makes of it all. Thanks again.

Hawkslayer..

rew1000

I'd echo the idea that you shouldn't end up paying tax twice, but I believe that except for obscure sources of income, there's only one "correct" way to pay tax. The UK-US treaty should set out who gets to tax what income.

I don't believe it's safe to say "I've already paid tax in the other country on that, so I won't bother declaring it here". If you look at the US foreign tax credit, you can take a credit for foreign tax paid that was rightfully due and is not refundable. If you've paid tax in the "wrong" place, that tax wasn't due, and is refundable, and that's the way to go.

snowbunny

All depends on whether the income is considered to have been "taxed at source."

A pension is iffy.... even if you paid taxes to fund it indirectly (eg on your income whilst working).

Mo and Ian are right; you need someone who knows what they are doing. And this thread belongs in The Trailer Park, no? (I have a tax question of my own lol -- if one's employer has a 401(k) plan (no matching) and one doesn't participate, can one write off the whole contribution to a traditional IRA?)

meauxna

SB, I should've moved it yesterday.. but to USA I think. It's a serious question, afterall.

lj2

Just to stick up for the CPA a little.. he is kind of right. If you have income from elsewhere you have to pay taxes in the US but they are offset by the UK taxes hence you will pay zero at the end of it.

That's how he'll be looking at it, from your point of view you'll be seeing that you don't need to pay taxes.

lansbury

I have a UK government pension which has to be taxed in the UK.

It has to be declared on my US tax return. My accountant then shows the tax paid in the UK.

If I would have had to pay say $6000 dollars in tax on that money in the US I can deduct from that the tax paid in the UK. In practical terms the tax I pay in the UK has so far been more than any Federal or State income tax due on that money and I therefore have paid no tax on it in the US at all.

Giantaxe

Oregon allows you to claim a foreign tax credit? Lucky you; that's not true of many states afaik.

But your example does illustrate why as lj2 points out, the CPA is effectively correct in that you do have to declare the UK-taxable pension income on a US tax return and then claim the foreign tax credit for UK tax paid. Only if there is specific tax treaty exemption for the type of income in question would this not be true.

lansbury

Yes Oregon lets you use the unused part of the foriegn tax.

So if for example I paid $6000 tax in the UK and Federal tax would have been $4000, I can use the remaining $2000 to offset State tax. At least that is how the CPA explained it and I go with their far greater knowledge.