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Taxation of Occupational Pension

Taxation of Occupational Pension

Old Sep 22nd 2021, 1:16 am
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Default Taxation of Occupational Pension

I moved to USA on a Spouse Visa in November 2020. Early in 2021 my wife and I filed tax papers to the US Authorities on a Joint basis. H&R Block took care of the paperwork and advised us that my Occu Pension, which is not much, did not figure in the taxable income. My pensions are MOD and NHS and both are taxed before being sent to my UK bank. I then move the funds on a monthly basis to my US bank account.

Given I receive my pensions NET each month ie tax taken by HMRC, if I elect to having my NET pensions paid directly to my US bank, do my tax obligations to the US Authorities change ie will IRS take more tax from my NET payment?

Grateful for any guidance.🙂

Last edited by stuwoolf; Sep 22nd 2021 at 2:00 am.
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Old Sep 22nd 2021, 2:51 am
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Default Re: Taxation of Occupational Pension

UK Government service pensions are normally taxed at source and do not attract additional taxation by the IRS. There is a list of specific occupational pensions that fall into this category - I'll try find it this week and post. The only time tax on these is due is when you become a US Citizen. Many states follow the federal guidelines on this tax treaty, but some do not so you will also need to check this.

W

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Old Sep 22nd 2021, 10:52 am
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Default Re: Taxation of Occupational Pension

Originally Posted by Winston_the_Great_Dane
UK Government service pensions are normally taxed at source and do not attract additional taxation by the IRS. There is a list of specific occupational pensions that fall into this category - I'll try find it this week and post. The only time tax on these is due is when you become a US Citizen. Many states follow the federal guidelines on this tax treaty, but some do not so you will also need to check this.

W
Thanks for your informative response. I hope you can post further info should you have it.

🙂
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Old Sep 22nd 2021, 3:29 pm
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Default Re: Taxation of Occupational Pension

My UK Government pensions (Ex Navy and a War pension) are both sent direct to my US account gross. UK does not take any tax.
I would have thought yours were the same.
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Old Sep 22nd 2021, 3:58 pm
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Default Re: Taxation of Occupational Pension

Originally Posted by excpomea
My UK Government pensions (Ex Navy and a War pension) are both sent direct to my US account gross. UK does not take any tax.
I would have thought yours were the same.
Worth noting that War Pensions are not taxable by the UK so that's payable gross regardless of where it goes.

My UK civil service pension attracts a tax code. I remember asking the tax office why as I am resident in Canada and the provider said UK sourced income was taxable regardless. I don't think that's correct from reading
"If you live abroad but are classed as a UK resident for tax purposes, you may have to pay UK tax on your pension. The amount you pay depends on your income. If you’re not a UK resident, you don’t usually pay UK tax on your pension. But you might have to pay tax in the country you live in."
Having received a tax refund when I became non-resident in the UK, I would have thought the second part automatically applied.
But I didn't make an issue of it as the pension is way lower than the personal allowance so doesn't attract any tax anyway.

It may be a bridge to cross if/when my UK state pension becomes payable.
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Old Sep 22nd 2021, 8:05 pm
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Default Re: Taxation of Occupational Pension

There is a difference between government pensions, and government service pensions as far as the UK/US tax treaty is concerned.

A UK Government Service Pension is taxed as follows if you live in the USA:-

You are a UK citizen living in the USA - only the UK can tax that pension.

You are a dual UK/US citizen living in the USA - the US taxes that pension (my circumstances)

You are a US citizen in receipt of a UK Government Service pension, and living in the US - the US taxes that pension.
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Old Sep 22nd 2021, 11:05 pm
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Default Re: Taxation of Occupational Pension

Originally Posted by lansbury
There is a difference between government pensions, and government service pensions as far as the UK/US tax treaty is concerned.

A UK Government Service Pension is taxed as follows if you live in the USA:-

You are a UK citizen living in the USA - only the UK can tax that pension.

You are a dual UK/US citizen living in the USA - the US taxes that pension (my circumstances)

You are a US citizen in receipt of a UK Government Service pension, and living in the US - the US taxes that pension.
My pensions are MOD Civil Servant and NHS Scotland. I am a UK Citizen only.

What are the definitions of government pensions, and government service pensions

I presume, as a UK Citizen residing in US, (US Spouse Visa) both my pensions can only be taxed by UK HMRC. So it is not a problem to look in to having my pensions sent direct to my US Bank Account, without concerns of US IRS wanting to tax it.

Last edited by stuwoolf; Sep 22nd 2021 at 11:07 pm.
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Old Sep 22nd 2021, 11:23 pm
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Default Re: Taxation of Occupational Pension

Originally Posted by stuwoolf
My pensions are MOD Civil Servant and NHS Scotland. I am a UK Citizen only.

What are the definitions of government pensions, and government service pensions

I presume, as a UK Citizen residing in US, (US Spouse Visa) both my pensions can only be taxed by UK HMRC. So it is not a problem to look in to having my pensions sent direct to my US Bank Account, without concerns of US IRS wanting to tax it.
depending on what visa / if you are a PR your are likely subject to to taxation on your worldwide income and subject to filling an FBAR. As others down thread note there may be some specific exemptions based on tax treaties for certain pensions, but foreign income being exempt is the exception.. not the norm, there is a DTA that mean you may qualify for a credit for foreign taxes paid, so often it’s only a matter of declaring it, the one issue can be state and city tax may also apply and the credit does not help with them.

read these links, especially the one on FBAR:

https://www.irs.gov/individuals/inte...ien-tax-status

https://www.irs.gov/individuals/inte...-presence-test

https://www.irs.gov/businesses/inter...eaty-documents

https://www.fincen.gov/report-foreig...ncial-accounts









Last edited by tht; Sep 22nd 2021 at 11:26 pm.
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Old Sep 23rd 2021, 1:46 am
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Default Re: Taxation of Occupational Pension

Originally Posted by tht
depending on what visa / if you are a PR your are likely subject to to taxation on your worldwide income and subject to filling an FBAR. As others down thread note there may be some specific exemptions based on tax treaties for certain pensions, but foreign income being exempt is the exception.. not the norm, there is a DTA that mean you may qualify for a credit for foreign taxes paid, so often it’s only a matter of declaring it, the one issue can be state and city tax may also apply and the credit does not help with them.

read these links, especially the one on FBAR:

https://www.irs.gov/individuals/inte...ien-tax-status

https://www.irs.gov/individuals/inte...-presence-test

https://www.irs.gov/businesses/inter...eaty-documents

https://www.fincen.gov/report-foreig...ncial-accounts
Thank you for your comments and your links.

I have to admit that reading anything regarding income tax makes my eyes glaze over. If only there was a simple straight forward answer.

It was my understanding that, as the result of an agreement, if tax was paid in UK no tax was due in US. AFAIK this is reciprocated.

Now, I am not so sure.
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Old Sep 23rd 2021, 1:25 pm
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Default Re: Taxation of Occupational Pension

This is interesting for me too, at some point my parents may move over to the US (would be IR5 so permanent residents once they arrive) and my mother would just have the UK State pension and a final salary civil service pension.I've tried to read about similar things and seem to be struggling to get a definitive answer as to where it would get taxed.
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Old Sep 23rd 2021, 10:12 pm
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Default Re: Taxation of Occupational Pension

Originally Posted by stuwoolf
My pensions are MOD Civil Servant and NHS Scotland. I am a UK Citizen only.

What are the definitions of government pensions, and government service pensions

I presume, as a UK Citizen residing in US, (US Spouse Visa) both my pensions can only be taxed by UK HMRC. So it is not a problem to look in to having my pensions sent direct to my US Bank Account, without concerns of US IRS wanting to tax it.
This is the relevant part of Article 19 of the UK-US Tax Treaty.

2. Notwithstanding the provisions of paragraphs 1 and 2 of Article 17 (Pensions, Social
Security, Annuities, Alimony, and Child Support) of this Convention:

a) any pension paid by, or out of funds created by, a Contracting State or a
political subdivision or a local authority thereof to an individual in respect of services
rendered to that State or subdivision or authority shall, subject to the provisions of subparagraph
b) of this paragraph, be taxable only in that State;

b) such pension, however, shall be taxable only in the other Contracting State if
the individual is a resident of, and a national of, that State.
This is the explanation of that from the Treaty Technical notes

Paragraph 2 deals with the taxation of pensions paid by, or out of funds created by, one of the States, or a political subdivision or a local authority thereof, to an individual in respect of services rendered to that State or subdivision or authority. Subparagraph (a) provides that such pensions are taxable only in that State. Subparagraph (b) provides an exception under which such pensions are taxable only in the other State if the individual is a resident of, and a national of, that other State.

Pensions paid to retired civilian and military employees of a Government of either State are intended to be covered under paragraph 2.
The MOD pension IMO is without doubt a Government Service Pension. If police and fire pensions count as Government Service Pensions, and they do, then a NHS pension should as well.
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Old Sep 23rd 2021, 10:16 pm
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Default Re: Taxation of Occupational Pension

Originally Posted by EdgeAA
This is interesting for me too, at some point my parents may move over to the US (would be IR5 so permanent residents once they arrive) and my mother would just have the UK State pension and a final salary civil service pension.I've tried to read about similar things and seem to be struggling to get a definitive answer as to where it would get taxed.
If your mother is only a UK citizen, the civil service pension would only be taxed in the UK. The UK State pension is taxable as income in the USA.

She could use her UK tax allowance against taxable income in the UK.

Last edited by lansbury; Sep 23rd 2021 at 10:19 pm.
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Old Sep 24th 2021, 4:27 am
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Default Re: Taxation of Occupational Pension

Originally Posted by EdgeAA
This is interesting for me too, at some point my parents may move over to the US (would be IR5 so permanent residents once they arrive) and my mother would just have the UK State pension and a final salary civil service pension.I've tried to read about similar things and seem to be struggling to get a definitive answer as to where it would get taxed.
You probably need to look at it in a more holistic way, even if it is taxable income in the US, would it exceed the standard deduction / and or would the cost of private healthcare, assuming not eligible to purchase Medicare (for at least 5 years) if she has never worked here, so she may be able to claim all the private healthcare costs as a deduction reducing any taxable income even further. Private health Insurnace should easily be more than 7.5% of AGI if it’s only some small pensions.
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Old Sep 24th 2021, 10:00 pm
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Default Re: Taxation of Occupational Pension

Originally Posted by lansbury



The MOD pension IMO is without doubt a Government Service Pension. If police and fire pensions count as Government Service Pensions, and they do, then a NHS pension should as well.
I think the distinction might be that MOD or Local Government etc employees are employed directly by a governmental organization. However, although the NHS is funded by the Department of Health it is independent of the Government and so NHS pensions are not government pensions.
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Old Sep 25th 2021, 12:04 am
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Default Re: Taxation of Occupational Pension

Originally Posted by nun
I think the distinction might be that MOD or Local Government etc employees are employed directly by a governmental organization. However, although the NHS is funded by the Department of Health it is independent of the Government and so NHS pensions are not government pensions.
Thanks.

Is your query not covered by "Paragraph 2 deals with the taxation of pensions paid by, or out of funds created by, one of the States, or a political subdivision or a local authority thereof, to an individual in respect of services rendered to that State or subdivision or authority. Subparagraph (a) provides that such pensions are taxable only in that State......"

That is, my MOD pension is paid from UK Govt funds and my NHS Scotland pension is by Scottish Govt which may be classified as a "political subdivision"?

Grateful for further comment🙂
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