nearpost1

Merry Christmas and Happy New Year to all

sorry to start with an apology, but I’m about to ask a question I fear may have been answered on here already, but I can’t find it.

I made about £4,000 in voluntary nic’s between 2008 and 2018. My 11 units (earned by me when I worked in U.K. from 1968 to 1979) turned into 30 units after the 19 voluntary units (the $4,000) were added on.

I started drawing my u.k. state pension September 2018 which of course I declare as income on my 1040. My question is...

Can I deduct the $4,000 (it was made up of after tax money), and if I can, how would I go about that, all in one go? A little at a time? Or am not entitled to any deduction whatsoever.

many thanks

theOAP

My initial thought would be no, the contributions are not tax deductible on a US 1040 return, but, I've never been in this situation.

If you are entitled to a standard US 401-type pension and then elect to buy a second, additional pension in the US, is there an IRS regulation that allows contributions to that second pension to be tax deductible? I don't know the answer to that question. Normally, contributions to a pension give you a 'basis' in that pension for US tax purposes which is different from a straight tax deduction on the contributions. Since NIC's are not dedicated solely to the UK State Pension, a basis cannot be computed and no basis is allowed. Unless you can find an IRS regulation allowing a tax deduction on contributions to a second pension, then the answer is likely no.

The IRS views the UK State Pension only as a foreign sourced pension and it is treated similar to a UK works pension for tax in the drawdown phase. In other words, it's reported as gross income. If the UK charged tax (which shouldn't happen for the State Pension for a US resident!) then the IRS would allow tax credits, but there is no UK tax to offset.

The voluntary contributions will help as far as WEP is concerned on US Social Security.

Perhaps someone with more accurate information will respond.

nearpost1

Thank you for your response, it’s much appreciated. I intended to run all this by my tax preparer but wanted to get your thoughts first,

Happy New Year OAP.