nun

US is one of the few countries that taxes on citizenship, so all US citizens are taxed on their worldwide income irrespective of where the are living.....Outer Mongolia included. There are tax treaties and things in the IRS code that allow you to avoid double taxation and exclude certain amounts of foreign earned income from US taxes so many US citizens who live abroad actually pay nothing, or very little, to the IRS, but they must file a 1040 every year. Having a relationship with the IRS until you die is one of the big consequences of becoming a US citizen. Actually it will go beyond your death as you will have to include it in your wills and estate planning.

Adnams

Oh my god, thats is really scary. What are the consequences if you dont file? And what are the consequences for my children? They are way off any kind of earning age yet but what happens to them? Do they need to file once they work? And what happens if they dont but at some point in their later lives want to visit or live in the US?
Lannd of the free? Hypocrites.

nun

A US citizen is legally required to file US taxes if they have above some income threshold. If you owe no tax then there aren't any fines or interest to pay for not filing a 1040, but there are other forms like FBAR and FATCA that have potentially large fines for not filing. Also it is often to your advantage to file as you can build up foreign tax credits. Practically you have to sit down each year to work out your US tax situation so it's best to file.

If your children are US citizens because they were born there they will have to file US taxes when they meet the income thresholds. They can renounce US citizenship when the get to 18 if they want.

Adnams

Its gets more complicated by the minute. :-0
i think we'll need a tax accountant, where do we find one with overseas abod expertise i wonder? Dont think we'll find one of those in Missouri, half the people have never left the state!
thanks for that info Nun I did not know that we had to file and that my children will when they become adults. If you dont file can you be barred re-entry to the states i wonder?

robin1234

Is this quite right? I'm thinking specifically about state pensions. Some state pensions are for non-SS earnings (e.g. teachers and other public employees in Massachusetts) while other state pensions are for SS earnings (e.g. teachers and other public employees in New York State.) For instance, my wife is a state employee in New York, she participates in Social Security, pays FICA, and she has a state pension also. I always assumed that the MA pension (if any) would result in WEP but the NYS would not.

nun

Sorry my wording was not clear I should have said "foreign state". I was referring to foreign state pensions like the UK state pension. If you get that because of voluntary NI contributions is not counted by WEP, but if you get the UK state pension from NI contributions paid out of UK earned income (ie non-SS income) that would count towards WEP.

As you point out MA state employees do not pay the SS part of FICA and so any state pension they receive results in WEP. However, as the state pension is a mandatory payment, then any income from other retirement accounts that they make voluntary payments to, like 403b or 457, does not result in any WEP.

robin1234

Got it. Thanks!

nun

You can find people who specialize in UK/US taxes on the internet. Most returns can be done remotely. Depending on your finances and distribution of accounts in the US and outside you might, or might not, need professional help. If you are leaving the US with no intention to return, giving up permanent residence and all you have in the US is an IRA you wont have to deal with US taxes until you start to take income form the IRA. But you will have to make sure you deal with that IRA appropriately on your foreign taxes.

RobPalt

Can I just add that as a Green Card holder living oustide the US or the UK you will also be taxed on your US SSc pension payments unless you live in certain countries that have reciprocal SSc agreements with the US.

I'm a Brit who lived in the US for thirteen years and then continued my career and life travels in other countries and am now retired in northern Thailand. At age 62 I elected to take my SSc pension only to find that it comes with a 24.5% tax deduction at source.

That SSc pension will be further reduced at age 65 by WEP if I choose to take the UK state pension, for which I am fully elligible, that will mean a 40% reduction followed by 24.5% tax!

I have read somewhere that WEP can only be applied once although I cannot substantiate it, in my case for example I am thinking of declaring a small private pension as income and allowing that to be WEP'd thus leaving the larger UK state pension "unWEPable", if anyone can verify that I will be grateful.

nun

You have to include all non-SS wage pensions so that the SSA can calculate the WEP on your SS payments. The max amount it can be WEPed is currently $385/month. If any of your UK pension is from voluntary NI contributions that fraction of the pension does not count towards WEP.

As you are an NRA living in Thailand 85% of your SS will be taxed at 30%. If you want to get your SS with no US tax withheld you could move back to the UK, but as I imagine you pay no tax in Thailand you might end up worse off.

RobPalt

Thank you for that. In practise SSc cannot charge me with WEP until I begin to recieve payment from one of my two remaining unclaimed pensions even though they know about both of them now, one becomes payable in six months time and the second larger UK state pension in two years time. Should I so choose I might defer payment of the UK state pension and simply allow it to increase in value (10% oper year) before claiming the larger payment, the question is whether they would WEP the second pension payment at a later date or whether WEP is, as I've heard, a one time shot.

jhandley

My husband who was a British citizen was drawing a British pension while living in the United States along with his full Social Security. Upon his death, I who am an American citizen, filed for a British pension based on my husband's pension. I am a retired teacher who was receiving a reduced amount of Social Security before my husband's death along with my teacher retirement. Upon his death, I was able to get a reduced increase of Social Security based on my husband's Social Security amount.

In addition, I now will be receiving a monthly pension from England. I also received a lump payment of British pension money that I should have been receiving for the past 5 years. I actually received only 1 year of the 5. I was not aware I was entitled to any British pension when I turned 60.

My question is this. Will the British pension money that I now am drawing(the lump sum and the monthly pension) affect the amount of Social Security that I am drawing? I am going to report this increase to Social Security. I just would like to have an idea of what SS will tell me. That way it will not be such a shock if WEP or GPO affects the pension.

nun

I've never heard of WEP being "a one time shot".

nun

If your husband was receiving full SS while also getting the UK pension, and assuming he had told SSA about the UK pension, then it should not reduce your SS amount. If the UK pension was derived from voluntary NI contributions it would not cause any WEP of SS. Also make sure you file a USIndividual-2002 so that no UK tax will be withheld from your UK pension.

Here is a summary of the WEP rules for UK pensions.

If you are entitled to a UK State Pension based on work after 1956, the amount of your US Retirement or Disability Benefit may be reduced in certain circumstances because of provisions in US law (Windfall Elimination Provisions).

However, your US benefit will never be reduced by more than one half of that part of your UK State Pension based on work after 1956. Any part of your UK State Pension based on voluntary contributions to the UK will not affect the amount of your US benefit.

Entitlement to UK widows' benefits and bereavement benefits, however, will not cause a reduction in your US benefit. If you are a woman in receipt of UK Widow's Benefit, it may be better to continue getting that benefit until age 65 rather than claim UK State Pension at age 60.

So it sounds that if you are claiming UK state pension as distinct from widow's benefits you will be WEPed. But if you are already being WEPed to the max because of your teachers pension it might not reduce your SS at all.

As an example I will receive a US state pension of about $23k a year when I retire. This will produce a maximum WEP and my UK state pension will not produce any further WEP. You can run some numbers at the SSA's website.

http://www.ssa.gov/retire2/anyPiaWepjs04.htm

Steve_

I'd say your first step should be to read IRS publication 54. It also applies to LPRs, not just US citizens, but obviously you will lose your LPR status if you leave.

Also read the instructions for Form 2555.

US tax liabilities for most US citizens who live abroad are generally minor, it's more to do with all the tax paperwork you have to file.

Your children will be under the reporting limit, but yes they have to file when they earn enough income to be above it (and even then, if they have foreign accounts they may need to file an FBAR and an 8938).

There are endless examples of Canadians getting buggered by the IRS. Most classic one I can recall is a developmentally disabled boy who lives here in Calgary. His parents died, so his father's friend is the guardian. The boy is a US citizen because he was born there, the guardians are not. The Canadian govt. pays benefits to the boy and it goes into an RDSP. This must be reported to the IRS and there is a small amount of tax liability because of the way an RDSP is treated in the US. The boy cannot renounce citizenship as he is not considered to be mentally fit to do it, and no-one can do it on his behalf.

Note also even if you renounce US citizenship, you may still need to file a tax return, i.e. if you've been a US citizen or LPR for more than eight years you have to file a 1040NR and an 8854 for ten years. Read IRS publication 519.