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UK State Pension and US tax return

UK State Pension and US tax return

Old Jan 10th 2024, 12:24 pm
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Default UK State Pension and US tax return

Can anybody help with how I enter my UK State Pension on US tax return. As I understand it this isn't taxable in US as it's taxed at source in the UK (it is however under the tax personal allowance). I already get my US retirement social security reduced because of WEP, then pay tax on that. I have tried asking the 'tax professionals' on Turbo Tax without much success. They told me to enter into 'other income" which resulted it being taxed!

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Old Jan 10th 2024, 2:12 pm
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Default Re: UK State Pension and US tax return

Other income is the correct place. Why are you paying tax in the UK? That is what you need to correct.
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Old Jan 11th 2024, 4:05 am
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Default Re: UK State Pension and US tax return

The US has the first right to tax your UK pension, and they will do so (it’s not an option to have the UK tax it at source instead). Although the amount is below the UK personal allowance and is therefore tax free in the UK, it remains taxable income in the US (in addition to WEP). Therefore, unfortunately you have to report it as advised and pay tax on it.
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Old Jan 14th 2024, 12:51 am
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Default Re: UK State Pension and US tax return

Originally Posted by Patzy
Can anybody help with how I enter my UK State Pension on US tax return. As I understand it this isn't taxable in US as it's taxed at source in the UK (it is however under the tax personal allowance). I already get my US retirement social security reduced because of WEP, then pay tax on that. I have tried asking the 'tax professionals' on Turbo Tax without much success. They told me to enter into 'other income" which resulted it being taxed!
the US taxes you on your worldwide income, you will likely get a credit for foreign tax’s (with some exemptions) if they are required to be paid… if as you note the income is below the personal allowance and you pay $0 tax on it you will get $0 credit for it. Also note that credits apply to the same type of income only, so you can’t use a tax credit from passive income for active income tax owed, also generally it only applies to federal, not state or city tax (I think some Canadian tax’s are treated differently).
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Old Jan 14th 2024, 4:43 am
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Default Re: UK State Pension and US tax return

As noted, although this has little impact for you (because your pension is less than your personal tax allowance), for the benefit of anyone else reading this, if you are not tax resident in the UK, you should not be paying tax in the UK.

Paying tax "voluntarily" in the UK (including by not bothering to notify HMRC that you are not liable for tax in the UK) does not absolve you of your tax liability in the country where you live, and you cannot solve this by "just" deducting tax paid in the UK from your tax liability in the country where you are tax resident. That (incorrect) approach might ensure your income is mathematically correct, but deprives the country where you are tax resident of income it is entitled to.
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Old Jan 20th 2024, 1:07 am
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Default Re: UK State Pension and US tax return

The UK State pension is entered as pension income on Lines 5a and 5b on Form 1040. It is foreign source, so is also entered on Form 1116, which may assist if there are foreign tax credit carryovers from any of the past 10 years. It is exempt from UK tax under Article 17(3) of the UK-US tax treaty.
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Old Jan 26th 2024, 5:58 am
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Default Re: UK State Pension and US tax return

I have just started to collect pension from UK and am classed as non-resident in the UK so they do not deduct tax - I am declaring all the income on US tax forms as required and will pay tax on it based on the average exchange rate for the year which is slightly preferable to the ongoing exchange rate based on the date paid.
GlasgowGirl is right, she is always right - it is taxable in the US but the bigger issue might be WEP which will decrease your SS based on your UK pension. I am lucky in that I have 30 years in the US and 10+ in UK so I dont need to worry about WEP


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Old Jan 30th 2024, 10:32 am
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Default Re: UK State Pension and US tax return

Originally Posted by TerryGoX
I have just started to collect pension from UK and am classed as non-resident in the UK so they do not deduct tax - I am declaring all the income on US tax forms as required and will pay tax on it based on the average exchange rate for the year which is slightly preferable to the ongoing exchange rate based on the date paid.
GlasgowGirl is right, she is always right - it is taxable in the US but the bigger issue might be WEP which will decrease your SS based on your UK pension. I am lucky in that I have 30 years in the US and 10+ in UK so I dont need to worry about WEP
Thank you for your reply. I already get my SS decreased due to WEP so that is not a problem. I am going to see a tax advisor at H & R block (previously from the UK and over 25 years experience) this week. Every tax advisor I have spoken to on turbo tax, as well as other places, have given different answers to how it should be entered on a US tax return, they really don't know because it is not a private pension. I am not saying it shouldn't be taxed, if that is the case, just want to enter it in the correct place. Also I found this interesting from Golding Lawyers "It is also important to note, that there are usually distinctions between public pensions and private pensions. For the most part public pensions are only taxable in the country of source whereas a private pension is typically taxable in the country of residence as well depending on the specific type of pension and if the taxpayer qualifies for any treaty exceptions or limitations."

Last edited by Patzy; Jan 30th 2024 at 10:46 am.
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Old Jan 30th 2024, 8:30 pm
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Default Re: UK State Pension and US tax return

Originally Posted by Patzy
Thank you for your reply. I already get my SS decreased due to WEP so that is not a problem. I am going to see a tax advisor at H & R block (previously from the UK and over 25 years experience) this week. Every tax advisor I have spoken to on turbo tax, as well as other places, have given different answers to how it should be entered on a US tax return, they really don't know because it is not a private pension. I am not saying it shouldn't be taxed, if that is the case, just want to enter it in the correct place. Also I found this interesting from Golding Lawyers "It is also important to note, that there are usually distinctions between public pensions and private pensions. For the most part public pensions are only taxable in the country of source whereas a private pension is typically taxable in the country of residence as well depending on the specific type of pension and if the taxpayer qualifies for any treaty exceptions or limitations."
I believe when the US-UK tax treaty refers to “public pensions” it is referring to pensions paid to retired government workers, not the OAP or SS benefits. From the tax treaty, article 17

Notwithstanding the provisions of paragraph 1 of this Article, payments made by a Contracting State under the provisions of the social security or similar legislation of that State to a resident of the other Contracting State shall be taxable only in that other State.
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Old Jan 31st 2024, 3:18 am
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Default Re: UK State Pension and US tax return

Patzy

I'll be interested in whatever response you get and I will be consulting with my own local accountant but suspect they will have no idea. I've looked at other threads on the topic

Here are some snippets
This works fairly easily. However I have read comments from expats that spoke to the IRS that they were told it is incorrect to report pensions in that "Other" section. IRS agents said Form 4852 was the correct method. I am researching this just now. Turbo Tax folks seemed confused about the options as TT doesn't seem to have a specific prompt for foreign pension handling. My concern is that I am not drawing down my IRA at this time but I am receiving a UK private and a UK old Age pension. New York State has a $20k tax free allowance for pensions but using the "Other Income" box on the 1040 does not automatically flag up that this is a pension and so the State doesn't see it as a category to utilize that 20k allowance.

don't think it matters that it's a
foreignpension. You can tell Turbo Tax that you received pension income but didn't receive a 1099R. It will ask you if you want to create a substitute 1099R, when you answer yes, the form created will be the 4852. Then the amount will be entered on line 5. If no tax is withheld in the UK, it's all taxable on your federal return. Even on a paper return 4852 is simple. I've always done it this way up to this year when I reported on line 5 but didn't bother with the 4852.

Federal tax will be deducted but there is some debate as to whether the state will tax "pensions". If it is reported as other income, then it will be taxed by state. I am not sure about what happens on a Form 4852 reporting.

Note:
Form 4852 serves as a substitute for Form W-2, Form W-2c, and Form 1099-R (original or corrected), and is completed by taxpayers or their representatives when:
  • Their employer or payer does not give them a Form W-2 or Form 1099-R.
  • An employer or payer has issued an incorrect Form W-2 or Form 1099-R.

The other problem that seems to pop up a lot is that the form asks for the "employers" TIN which of course you will not have. Some people seem to make up a number, others leave it blank. Not sure if Turbo tax allows for a blank entry here.

Again, let me know how you get on and I will reciprocate. Its my first tome reporting UK pension




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Old Jan 31st 2024, 5:36 am
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Default Re: UK State Pension and US tax return

Originally Posted by TerryGoX
Patzy

I'll be interested in whatever response you get and I will be consulting with my own local accountant but suspect they will have no idea. I've looked at other threads on the topic

Here are some snippets
This works fairly easily. However I have read comments from expats that spoke to the IRS that they were told it is incorrect to report pensions in that "Other" section. IRS agents said Form 4852 was the correct method. I am researching this just now. Turbo Tax folks seemed confused about the options as TT doesn't seem to have a specific prompt for foreign pension handling. My concern is that I am not drawing down my IRA at this time but I am receiving a UK private and a UK old Age pension. New York State has a $20k tax free allowance for pensions but using the "Other Income" box on the 1040 does not automatically flag up that this is a pension and so the State doesn't see it as a category to utilize that 20k allowance.

don't think it matters that it's a
foreignpension. You can tell Turbo Tax that you received pension income but didn't receive a 1099R. It will ask you if you want to create a substitute 1099R, when you answer yes, the form created will be the 4852. Then the amount will be entered on line 5. If no tax is withheld in the UK, it's all taxable on your federal return. Even on a paper return 4852 is simple. I've always done it this way up to this year when I reported on line 5 but didn't bother with the 4852.

Federal tax will be deducted but there is some debate as to whether the state will tax "pensions". If it is reported as other income, then it will be taxed by state. I am not sure about what happens on a Form 4852 reporting.

Note:
Form 4852 serves as a substitute for Form W-2, Form W-2c, and Form 1099-R (original or corrected), and is completed by taxpayers or their representatives when:
  • Their employer or payer does not give them a Form W-2 or Form 1099-R.
  • An employer or payer has issued an incorrect Form W-2 or Form 1099-R.

The other problem that seems to pop up a lot is that the form asks for the "employers" TIN which of course you will not have. Some people seem to make up a number, others leave it blank. Not sure if Turbo tax allows for a blank entry here.

Again, let me know how you get on and I will reciprocate. Its my first tome reporting UK pension
I have always used 4852 (substitute 1099-R) and make up employer TIN’s for my 2 UK private pensions, simply to get TurboTax to move on. The 4852 explains what the pensions are and why no 1099s.
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Old Jan 31st 2024, 2:34 pm
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Default Re: UK State Pension and US tax return

Originally Posted by TerryGoX
Patzy

I'll be interested in whatever response you get and I will be consulting with my own local accountant but suspect they will have no idea. I've looked at other threads on the topic

Here are some snippets
This works fairly easily. However I have read comments from expats that spoke to the IRS that they were told it is incorrect to report pensions in that "Other" section. IRS agents said Form 4852 was the correct method. I am researching this just now. Turbo Tax folks seemed confused about the options as TT doesn't seem to have a specific prompt for foreign pension handling. My concern is that I am not drawing down my IRA at this time but I am receiving a UK private and a UK old Age pension. New York State has a $20k tax free allowance for pensions but using the "Other Income" box on the 1040 does not automatically flag up that this is a pension and so the State doesn't see it as a category to utilize that 20k allowance.

don't think it matters that it's a
foreignpension. You can tell Turbo Tax that you received pension income but didn't receive a 1099R. It will ask you if you want to create a substitute 1099R, when you answer yes, the form created will be the 4852. Then the amount will be entered on line 5. If no tax is withheld in the UK, it's all taxable on your federal return. Even on a paper return 4852 is simple. I've always done it this way up to this year when I reported on line 5 but didn't bother with the 4852.

Federal tax will be deducted but there is some debate as to whether the state will tax "pensions". If it is reported as other income, then it will be taxed by state. I am not sure about what happens on a Form 4852 reporting.

Note:
Form 4852 serves as a substitute for Form W-2, Form W-2c, and Form 1099-R (original or corrected), and is completed by taxpayers or their representatives when:
  • Their employer or payer does not give them a Form W-2 or Form 1099-R.
  • An employer or payer has issued an incorrect Form W-2 or Form 1099-R.

The other problem that seems to pop up a lot is that the form asks for the "employers" TIN which of course you will not have. Some people seem to make up a number, others leave it blank. Not sure if Turbo tax allows for a blank entry here.

Again, let me know how you get on and I will reciprocate. Its my first tome reporting UK pension
Hi and thanks for your response. Yes I will certainly report. I was looking at the US/UK double taxation treaty Article 17 which deals with pension, but I can't pretend I understand what it means, Also from the IRS and again it depends what it is referring to " With respect to government pensions/public pensions/annuities (typically covered under the Government Service article) or social security payments, generally the payments are only taxable by the country in which the government is making the payments. Note that what constitutes a government pension or public pension is dictated by the treaty, and the rule may apply narrowly. Does anyone really know??
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Old Jan 31st 2024, 7:34 pm
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Default Re: UK State Pension and US tax return

Originally Posted by Patzy
Does anyone really know??
unfortunately not, which is why we have endless debates on the topic.

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Old Feb 1st 2024, 6:14 am
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Default Re: UK State Pension and US tax return

Originally Posted by Cook_County
The UK State pension is entered as pension income on Lines 5a and 5b on Form 1040. It is foreign source, so is also entered on Form 1116, which may assist if there are foreign tax credit carryovers from any of the past 10 years. It is exempt from UK tax under Article 17(3) of the UK-US tax treaty.
There is a problem doing that if one is using Turbo Tax. TT requires you fill out a substitute 1099R but there is no Federal Tax ID available for the source. As there is no tax ID TT will not file electronically, or it wouldn't, not tried for a few years.

The work around given on TT web site is to list it under Miscellaneous Income. I've done it this way for the past 5 years, listing as "Pensions From The United Kingdom", and this years has been done the same way. Never had any push back from the IRS or Oregon State Revenue. This saves having to complete 5 substitute 1099Rs. Haven't filed yet so willing to be educated to use a better method.
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Old Feb 1st 2024, 6:27 am
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Default Re: UK State Pension and US tax return

Originally Posted by lansbury
There is a problem doing that if one is using Turbo Tax. TT requires you fill out a substitute 1099R but there is no Federal Tax ID available for the source. As there is no tax ID TT will not file electronically, or it wouldn't, not tried for a few years.

The work around given on TT web site is to list it under Miscellaneous Income. I've done it this way for the past 5 years, listing as "Pensions From The United Kingdom", and this years has been done the same way. Never had any push back from the IRS or Oregon State Revenue. This saves having to complete 5 substitute 1099Rs. Haven't filed yet so willing to be educated to use a better method.

What I do, and have done for about 15 years, is complete a substitute 1099R for each of my 2 UK private pensions and enter the Federal Tax id as 99-1234567 in order to get TT to e-file. In the explanation on that form, line 10, I put “THIS IS A PENSION PLAN FROM AN EX-EMPLOYER IN ENGLAND AND THEY DO NOT ISSUE US STYLE 1099-R TAX FORMS“
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