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UK state pension and USA social security

UK state pension and USA social security

Old Mar 23rd 2015, 1:34 am
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Default Re: UK state pension and USA social security

Originally Posted by UK2US1979
Your periodic pension going forward would have been higher if you had not taken the lump sum also. I believe it is on this "higher" amount that the SSA would calculate the WEP. The form does ask for the Lump sum information and the period it relates to.
I agree with that and it would have been bigger. But the advice is always to answer the question that is asked, and they do ask is the lump sum instead of a pension. The question is badly worded.
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Old Mar 23rd 2015, 1:59 am
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Default Re: UK state pension and USA social security

Originally Posted by lansbury
I agree with that and it would have been bigger. But the advice is always to answer the question that is asked, and they do ask is the lump sum instead of a pension. The question is badly worded.
I cant lay my hand on it right now but some time back I read somewhere that SSA would use that Lump sum information to calculate that "bigger" amount if you had not taken the lump sum. I am pretty certain about that.
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Old Mar 23rd 2015, 3:24 am
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Default Re: UK state pension and USA social security

Originally Posted by UK2US1979
I cant lay my hand on it right now but some time back I read somewhere that SSA would use that Lump sum information to calculate that "bigger" amount if you had not taken the lump sum. I am pretty certain about that.
Yes I agree that is what they do, but I'm saying they have worded their question badly.
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Old Mar 23rd 2015, 5:25 am
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Default Re: UK state pension and USA social security

Originally Posted by lansbury
Yes I agree that is what they do, but I'm saying they have worded their question badly.
Pretty much everything is worded badly with wep.
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Old Mar 23rd 2015, 4:32 pm
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Default Re: UK state pension and USA social security

For WEP calculation purposes the pension is the weekly rate (plus GP, etc.) at your UK Retirement age. The extra pension from deferred is interest and not reportable on form SSA-308. If you have another pension that is a lump sum (or periodic) then you use an additional SSA-308. Pretty sure this is the way!
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Old Apr 4th 2015, 7:50 pm
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Default Re: UK state pension and USA social security

Situation - both wife and I are UK GC holders resident in USA. I have >30 years SSA contributions so not subject to WEP when I start taking SSA payments.
Wife has zero SSA contributions and is currently collecting SSA spousal benefit based on my record.
She is entitled to full UK pension based on (mostly) voluntary contributions to UK scheme. If she now starts collecting UK pension is her SSA payment subject to WEP?
Also can anyone accurately explain the treaty regards 25% lump sum payments from private pensions? These are tax free in UK and appear to be tax free in USA based on my reading of the treaty.
Thanks!!
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Old Apr 4th 2015, 8:02 pm
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Default Re: UK state pension and USA social security

Originally Posted by gester
She is entitled to full UK pension based on (mostly) voluntary contributions to UK scheme. If she now starts collecting UK pension is her SSA payment subject to WEP?
General forum wisdom is that the spouse is not subject to WEP. However reading the various information provided by SSA, there is a niggling doubt that might not be correct.

I am in the process of completing my application based on my wife's contributions. It will be payable in July so we might have a clearer idea then.


Also can anyone accurately explain the treaty regards 25% lump sum payments from private pensions? These are tax free in UK and appear to be tax free in USA based on my reading of the treaty.
Thanks!!
If it is a private pension and not a government service pension, all the professional advice I received, said taking the 25% lump sum in the UK is taxable in the US. BE member NUN will no doubt be along shortly to describe his cunning plan for avoiding the tax in the US.
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Old Apr 5th 2015, 2:13 am
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Default Re: UK state pension and USA social security

Thanks - And one more if I may - UK pension is taxable to GC residents in the USA - does it qualify for the 85% max like the SSA pension?

BTW - my reading of Article 17 para 1 (b) suggests any payment in the UK that is tax free is also tax free in the USA. It explicitly states it works the other way around e.g. Roth payments to US citizen resident in the UK are tax free in both places.
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Old Apr 5th 2015, 10:04 am
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Default Re: UK state pension and USA social security

Originally Posted by gester
Thanks - And one more if I may - UK pension is taxable to GC residents in the USA - does it qualify for the 85% max like the SSA pension?
No.
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Old Apr 5th 2015, 1:20 pm
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Default Re: UK state pension and USA social security

Originally Posted by gester
Thanks - And one more if I may - UK pension is taxable to GC residents in the USA - does it qualify for the 85% max like the SSA pension?

BTW - my reading of Article 17 para 1 (b) suggests any payment in the UK that is tax free is also tax free in the USA. It explicitly states it works the other way around e.g. Roth payments to US citizen resident in the UK are tax free in both places.
You are missing the saving clause in Article 1.4 that allows the US to tax it's residents and citizens as if the treaty had not come into force.

If you take the UK pension as a lump sum (whatever that is) it will be fully taxable in the US. However, if you take it as a series of periodic payments you can argue that it is taxed under Article 17.1 which is exempt from the saving clause and so the 25% is also tax free in the US. I have not seen any professional opinions on this, it's just seems like common sense to me.

You need to be careful when you say "pension" as there are different types that are taxed differently, here are some basics

No foreign pension is taxed like SS. You enter foreign pensions on line 16 of the 1040 do not lump them in with US social security payments.

If you are US resident and receive UK state pension it is only taxable in the US.
If you are US resident, but not a US citizen, UK Government pensions are only taxable in the UK.
If you are a US resident, UK private pensions are only taxable in the US.
If you are a US resident, a UK lump sum payment is taxable in both the US and the UK.
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Old Apr 5th 2015, 2:50 pm
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Default Re: UK state pension and USA social security

Originally Posted by nun
If you are a US resident, a UK lump sum payment is taxable in both the US and the UK.
Nun, do you happen to know how this works in practice? Is it taxed at source by the UK pension company, and you then get a credit for that amount agsinst your US taxes? Or do y have to file a UK tax return, and get it refunded somehow..?

Would it be any different if you were a US citizen and not just a resident? And do you get to use the UK annual Personal Tax Allowance, so you could take a small pension out over several years and not pay any UK tax, to make lthe admin easier?

Thanks!
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Old Apr 5th 2015, 5:29 pm
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Default Re: UK state pension and USA social security

Originally Posted by gester
She is entitled to full UK pension based on (mostly) voluntary contributions to UK scheme. If she now starts collecting UK pension is her SSA payment subject to WEP?
Having just reread your question I see no-one has addressed the voluntary contributions part. Whatever SSA decide about spouses pensions and WEP, that part of her UK pension which is based on the voluntary contributions is not subject to being used in the WEP calculation. Only the part based on contributions which were deducted from earnings is.

Last edited by lansbury; Apr 5th 2015 at 5:35 pm.
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Old Apr 5th 2015, 6:08 pm
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Default Re: UK state pension and USA social security

I found this IRS definition of "lump sum" under topic 412...
"A lump-sum distribution is the distribution or payment within a single tax year of a plan participant's entire balance from all of the employer's qualified plans of one kind (for example, pension, profit-sharing or stock bonus plans). Additionally, a lump-sum distribution is a distribution that is paid:

Because of the plan participant's death,
After the participant reaches age 59½,
Because the participant, if an employee, separates from service, or
After the participant, if a self-employed individual, becomes totally and permanently disabled."

I understand Para 2 is not exempted from the saving clause but it doesn't need to be as the 25% payment is not the "entire balance".
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Old Apr 5th 2015, 7:45 pm
  #704  
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Default Re: UK state pension and USA social security

Originally Posted by kodokan
Nun, do you happen to know how this works in practice? Is it taxed at source by the UK pension company, and you then get a credit for that amount agsinst your US taxes? Or do y have to file a UK tax return, and get it refunded somehow..?

Would it be any different if you were a US citizen and not just a resident? And do you get to use the UK annual Personal Tax Allowance, so you could take a small pension out over several years and not pay any UK tax, to make lthe admin easier?

Thanks!
UK private pensions are not UK taxable when paid to a US resident, be that a US citizen or resident alien. You file a US Individual 2002 form and the UK pension will be paid gross, no UK tax withheld. The UK tax allowance is not applicable because the income itself is UK tax free and there is no need to file a UK self assessment.

Last edited by nun; Apr 5th 2015 at 7:54 pm.
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Old Apr 5th 2015, 7:48 pm
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Default Re: UK state pension and USA social security

To add to the discussion the SSA seems to treat pensions such as the one in the UK as follows for WEP purposes in their POMS manual:

"4. Unique payments
When an employer or pension-paying agency allows an individual who is eligible for retirement or disability benefits to determine the disbursement amount, the duration of the pension or the start date, WEP is applicable when the individual first becomes entitled to the pension per RS 00605.360B.3. Treat the pension as a lump sum and follow the instructions in the next subsection RS 00605.364C.5."

Ie as a lump sum.

This is not enshrined in law nor do I know if this has been added recently or not. However it does provide some clear evidence of how the US intends to treat these UK pensions. Whether that is correct or not is still up for debate. And whether the IRS takes this view is also unknown.

Do also note that the definition for lump sum in the US is in respect to qualified retirement plans. Since UK pensions are not qualified and US qualified pensions wouldn't allow tax free payments like that there is also an argument to say that the definition doesn't apply to uk pensions.

Last edited by jb82; Apr 5th 2015 at 7:50 pm.
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