Michael

Only part of social security is considered taxable income when filing US taxes (maximum 85% depending on total income). I believe that when you move back to the UK, US social security is taxed in the UK as 100% taxable income and not taxed by the US so therefore delaying taking SS may possibly not be the best as far as taxes.

Depending on your total income, the benefit could be very significant (none could be taxable) or relatively small (85% is taxable) but is almost impossible to determine the benefit by trying to calculate it without a tax preparation program.

The following basically describes the tax benefit.

http://www.irs.gov/pub/irs-pdf/p915.pdf

The easiest way to determine the amount of the benefit is to use last years tax preparation program (if available) and enter expected social security benefits.

nun

In the UK only 90% of foreign pensions or SS is taxed. However, you can avoid UK tax on income from US retirement accounts like 401k, IRA etc by simply rolling it over to a ROTH before you take the income.

Michael

The tricky part with social security benefits is that it can possibly cause taxes to go from a marginal tax bracket of 0% to effectively to about 20%-30% skipping over the 10% and 15% marginal tax brackets. Therefore just calculating what part of social security is taxable is only part of the problem and a tax preparation program is needed to determine what happens with taxes.

Since I didn't understand exactly what was happening, I used a tax preparation program and entered my social security benefits and other pensions which I have no control over and then added capital gains and qualified dividends (which are not taxed unless your marginal tax bracket is 25% or greater) and/or other unearned income and watched what happened to taxes. After many different scenarios, it finally all made sense and allowed me to tax plan better.

theOAP

+1

In fact, I'm one of the old school that believes a substitute 1099R is not required for a non-qualifying (foreign) pension even if included on line 16. Nothing improper about including 4852, but not really needed. And yes, I know some commercial software packages require it.

robin1234

I just felt that using a 4852, I could describe the income, the name and address of the UK agency that pays it, and the annual amount. In other words, the type of info that otherwise would be on the 1099. I guess I think of the IRS like the Stasi; bury it with paperwork, and eventually their basement filing cabinets will collapse with the weight.

(That's one reason I file on paper via US mail. Apparently, we won't be able to do that next year with FBAR, they redesigned and it's online only ....)

theOAP

I haven't looked at 4852, so don't know what is on it, but doubt there is anything that's not on 8938 for someone filing that form.

As for FinancialCrimesEnforcement form 114, there's 67 pages of instructions. I'll still wait until May of next year to see if E filing is mandatory, or FBAR as is just might be acceptable. I refuse to have the details of any account on a computer that has access to the internet. (I'm so oldfashioned, I still write cheques .)

I am curious as to the hints of a revised Schedule B.

robin1234

New York State tax filing was like that. For 2011, it was all "Stop! You MUST file online. There is a penalty if you file on paper." I ignored the admonition, and filed on paper via snail mail, as I'm sure millions of other New Yorkers did. 2012 filing, they backed down completely and there was no more mention of tax payers having to file online.

My Criminal filing, 67 pages of instructions? Meh, that's nothing. I'll bet some of those pages are Intentionally Left Blank, too!!

nun

The UK state pension does not need to be included on 8938.

Also by including foreign pensions as other income you miss out on the tax free part of payments......I figure 96% of my UK SS would be taxable in the US. The percentage is so high because most of my contributions are the inexpensive Class 2 NI. For most other annuities or if you made Class1 contributions you'd get a larger tax free amount.

nun

Tax planning is one of the really tricky parts of retirement. The usual strategy in the US is to defer SS as long as you can and spend down your personal retirement savings to reduce Required Minimum Distributions at age 70.5. This also increases your guaranteed, inflation linked, lifetime income for the later stages of retirement. Where else can you get an 8% increase in your payment for each year you defer, indexed to inflation and guaranteed for life. Similar logic applied for the UK pension too.

FYI here is an excellent application/website for US retirees that goes through all the combinations of ROTH rollovers etc to give you the most tax efficient solution for retirement income.....

http://www.i-orp.com/

theOAP

Now, you really have lost me.

nun

Well I'm arguing that as the UK SS is treated like a non-qualified retirement annuity for US tax purposes you can use the General Method to calculate the taxable part...ie that part that is not a return of your investment in the annuity.

theOAP

OK, if you say so (I'm not passing judgement!!). What does that have to do with the amount one might put on line 21? Are foreign 'annuities', with no US federal tax withheld (and hence, no need to file a 1099-R or substitute), restricted to line 16?

I assume you're talking about the General Rule. Have you had a dry run of the work sheet, and what information it requires for the General Rule?

nun

Yes I looked at the General Rule and a number of examples and ran my UK SE prediced numbers through it for age 67.

I suppose you could equally well put the taxable amount on line 21, but line 16 seems more appropriate and naturally directs you to calculate the taxable amount of the annuity.

robin1234

How come I never heard of the General Rule before? Looks like I'll be reading Publication 939 .. Just when I was looking forward to starting that biography of Anthony Trollope.

nun

Maybe because you have a life.

Using the General Rule or Simplified Method is only applicable if some of the payments into the annuity were made with money you paid income tax on. Class 2 and Class 3 voluntary NI payments are made with taxed money so you don't have to pay tax on that again when it's returned as part of the annuity payment. I don't think it's applicable if you paid Class 1 because those payments are made before tax. You would use the General Rule for a non-qualified plan like UK state pension. If you paid 30 years of Class 2 you'd get around 4% of the UK state pension tax free. For 30 years of Class 3 voluntary NI that would go up to 20% tax free because Class3 payments are about 5 times as expensive.....those are just quick estimates.