Satu12

Hi,
Does anyone have any experience of how or if the California franchise tax board will tax a deferred, defined benefit UK pension. All I get each year is a statement telling me what i could earn per annum when I retire in 20 odd years time!

Disenchanted

Off the top of my head I would say that there will be no tax until you actually receive the funds. It sounds like it's so small it won't meet the FATCA reporting threshold and I don't think a DBP is required to be filed on FBAR. If I'm wrong I'm sure someone will correct me.

robin1234

First question would be, how will the United States tax it ( in twenty odd years time.) I believe the answer to that is, you enter the whole amount of the calendar year distribution in 1040 line 16a. I think the whole amount is taxable, so you'd enter the same amount in line 16b.

As for California, you'd then look at their tax form to see how amounts in line 16 transfer to the CA form. (I'm a New York taxpayer, so don't know about CA tax.)

Pulaski

Well it won't be taxed at all until you start receiving it, and while nobody can be certain how it will be taxed 20+ years from now, it is likely that it will be subject to state and federal income taxes.

When you prepare to start receiving your pension you will need to notify the pension administrator that you are outside the UK so that you receive your pension gross (without UK income tax deducted).

Depending on your social security situation you may also suffer some reduction of your social security due to WEP (windfall elimination provision).

nun

Most states honor US tax treaties, however CA is one if the states the does not. So the tax deferral of a foreign pension at the federal level might not be honored by CA. You should ask the CA tax authority or a CA qualified accountant how a foreign pension is taxed.

Satu12

Thanks everyone. I had a chat with someone who advertises doing tax returns for foreigners - all the qualifications etc etc. They gave me another name to call and told me to tell them when I find out! If you look at some of the expert chat sites you can see total confusion and disagreement, even about the simpler federal treatment of pensions, which will be a doddle compared to CA. Now talking to two other experts. Hopefully will get some answers, costly ones no doubt!

MidAtlantic

Why not go to the CA Tax Board website... they appear to have some relevant guidance. Failing that I would call them. Failing that I would consult a CA QUALIFIED/EXPERIENCED tax advisor.

nun

If CA does not recognized the tax deferral of a UK pension wrapper that is given at the Federal level it will be a big problem for record keeping and there'll be a current CA tax bill and maybe foreign mutual fund issues. I hope the tax deferral is granted.

Satu12

Well - the California "expert" (qualified up to the eyeballs!) wasn't clear either! I'm probably overcomplicating everything which is what happens with US tax questions! I am however now an expert on trusts!