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UK state pension and USA social security

UK state pension and USA social security

Old Oct 18th 2015, 2:47 am
  #916  
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Default Re: UK state pension and USA social security

Originally Posted by lansbury
Where did you read that the part of the UK State pension down to voluntary peyments is not taxable in the US? Part of Mrs Ls current UK Pension is from voluntary payments and that is having US tax paid on it
There was an interesting article in the FT this week about making voluntary payments (in the context of those special top ups that the imminently-about-to-be-retired can make, but still, similar point for all voluntary contributions). It included the following comment:

'The key here is that if you have £22,250 sitting around it is capital. Capital on which no tax is due. If you turn it into state pension it becomes income. Income subject to income tax.'

I've got an ongoing spreadsheet about making voluntary contributions versus investing the cash versus deferred pays outs, etc, but I hadn't thought to figure the sudden creation of income tax payable into it. It was a useful addition.

http://www.ft.com/intl/cms/s/0/314a7...#axzz3osq3S7Ge
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Old Oct 18th 2015, 3:19 am
  #917  
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Default Re: UK state pension and USA social security

Originally Posted by lansbury
Where did you read that the part of the UK State pension down to voluntary peyments is not taxable in the US? Part of Mrs Ls current UK Pension is from voluntary payments and that is having US tax paid on it
The US taxes UK state pension as if it is a foreign pension. It is fully taxable in the US and gets entered on line 16. If you have paid voluntary NICs with money that has already been taxed in the US you have a US tax free basis in the UK state pension. You can treat it like an annuity and do the IRS calculation to derive the tax free and taxable amounts of the pension.
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Old Oct 18th 2015, 3:37 am
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Default Re: UK state pension and USA social security

Originally Posted by nun
The US taxes UK state pension as if it is a foreign pension. It is fully taxable in the US and gets entered on line 16. If you have paid voluntary NICs with money that has already been taxed in the US you have a US tax free basis in the UK state pension. You can treat it like an annuity and do the IRS calculation to derive the tax free and taxable amounts of the pension.
Nun, in my case voluntary NIC's were class 2. I project a Grand Total of about £2500 for 19 units in payments to dwp. Am I correct in assuming I am only only going to avoid tax on something like £2500 over the extent of my retirement?

Thanks

Last edited by nearpost1; Oct 18th 2015 at 3:39 am.
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Old Oct 18th 2015, 4:05 am
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Default Re: UK state pension and USA social security

Originally Posted by nearpost1
Nun, in my case voluntary NIC's were class 2. I project a Grand Total of about £2500 for 19 units in payments to dwp. Am I correct in assuming I am only only going to avoid tax on something like £2500 over the extent of my retirement?

Thanks
I would think so as that is how it normally works for annuities in the USA, and that is how it also works for IRA withdrawals. Both are reported on a 1099-R which shows the total amount paid in the year and the amount that is taxable. For example if I have paid $40k into an annuity over the years and it is now worth $120k, and I convert that into monthly payments then during the life of those payments I can expect to have $40k repaid tax free and pay taxes on all the gains that $40k has made.

The tricky part with the UK OAP is figuring out the taxable portion of the payments. I have another 6 years before facing this question for real by which time I'll have a number of years experience being a US citizen living in the UK. I think I may actually be in the UK 40% tax band at that stage so any tax savings I may make on my US tax return will be swamped by the UK tax I'll pay on the UK pension anyway.
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Old Oct 18th 2015, 4:10 am
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Default Re: UK state pension and USA social security

Many thanks Durham.
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Old Oct 18th 2015, 5:27 am
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Default Re: UK state pension and USA social security

Originally Posted by nun
The US taxes UK state pension as if it is a foreign pension. It is fully taxable in the US and gets entered on line 16. If you have paid voluntary NICs with money that has already been taxed in the US you have a US tax free basis in the UK state pension. You can treat it like an annuity and do the IRS calculation to derive the tax free and taxable amounts of the pension.
Right that is different than the post I replied to as you have put the qualifier in that the payments must come from money taxed in the US. That important qualifier was missing from that post.

Wondered how I had missed that but it hadn't registered as it doesn't apply in our case.

Last edited by lansbury; Oct 18th 2015 at 5:31 am.
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Old Oct 18th 2015, 12:52 pm
  #922  
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Default Re: UK state pension and USA social security

Go to the 1040 instructions for line 16a and 16b of the 1040 and see if the General or Simplified Method should be used to calculate the taxable amount. This might be a slightly aggressive approach as the UK SS is not a "qualified plan".

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
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Old Oct 18th 2015, 3:26 pm
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Default Re: UK state pension and USA social security

Being the miserable, grouchy old man that I am, and edging towards troll territory, I would like to add an additional consideration to the mix. I have no doubt most will ignore this completely, and I subscribe to the maxim that everyone's tax return is their own business.

To calculate the non-taxable amount to deduct (excluded) from a foreign pension on a US return, one must use publication 939, General Rule for Pensions and Annuities. Obviously, if one has mixed Class 1 and Class 2 contributions, the Class 2 contributions to a UK State Pension can be discarded by calculating proportioned amounts. This raises a question: does that remaining amount represent your Class 1 NI contributions to a pension only, with the whole amount being for a State pension benefit? (Hint, the answer is no).

"Class 1 national insurance contributions count towards contribution-based Jobseeker’s Allowance, Incapacity Benefit, contributory Employment and Support Allowance, Bereavement Benefits, State Retirement Pension and Maternity Allowance." (bold mine).

https://www.citizensadvice.org.uk/be...-contributions (scroll upwards for info)

So, what proportion of the NI contribution actually goes to the State pension element? You don't know.

I played with this conundrum when I first retired. As a result, I do not deduct any portion from my gross UK State Pension for the UK Class 1 NI contributions I made while employed towards the UK State Pension (19 years eligible). I submit the gross amount.

It's simpler for my other 4 foreign pension, and I do take a deduction for contributions made (and previously declared on a US return) on my portion of contributions on my current US return. The exact amount of my contributions is known, including one to a State Pension from another EU country. The "contributions declared as part of gross income on previous US tax returns" raises its own questions. For the time being, and provided the UK does not increase too much further its already generous tax free amounts, It makes no difference to my US return, and only reduces my carryover/carry back amounts slightly (subjective). @durham-lad, I'm also in the 40% bracket.

As I said, everyone will have their own opinion on this subject, and I won't disagree with your opinion. It's just something to be aware of.

Last edited by theOAP; Oct 18th 2015 at 3:33 pm.
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Old Oct 20th 2015, 6:26 pm
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Default Re: UK state pension and USA social security

Originally Posted by lansbury
We didn't have to provide any documentation. We applied online and where then interviewed by telephone. We gave the details of our UK pensions and swearing on the usual pain of perjury etc those details were accepted without further proof.
Update: I applied online and last week and a few days later received a phone call from a Social Security Claims Specialist in Albuquerque, NM, requesting a copy of my HMRC letter that gives a history of my NI payments, and also my letter showing the amount of my pension. I also sent my very first pension statement that shows how my payment is made up.

I'm just waiting now to hear back from him.
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Old Oct 20th 2015, 7:11 pm
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Default Re: UK state pension and USA social security

Originally Posted by hutchiebug
Update: I applied online and last week and a few days later received a phone call from a Social Security Claims Specialist in Albuquerque, NM, requesting a copy of my HMRC letter that gives a history of my NI payments, and also my letter showing the amount of my pension. I also sent my very first pension statement that shows how my payment is made up.

I'm just waiting now to hear back from him.
Hi Hutchiebug, greetings from another Seattle expat.

A question regarding those pre 1975 NIC's. What specific steps have you taken to show the agent in New Mexico that the portion of your U.K. Pension that came from pre 1975 credits is not subject to WEP? I know you said that DWP weren't computerized back then, so just wondering how you have tackled this.

Thanks
Tony

About me:
Born in 9/1953 Worked in U.K. From 1969 through 1979 paid up with 11 units of NIC's Class1
Lived in U.S. From 1979 to present, so far sent 16 years of voluntary NIC's back to U.K. Growing to 19 years by 2018.
Current age 62, will collect U.K. State pension in 2018 and have 23 years of substantial earnings in Social Security, which I'll claim in 2019

Last edited by nearpost1; Oct 20th 2015 at 7:20 pm.
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Old Oct 20th 2015, 7:11 pm
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Default Re: UK state pension and USA social security

Originally Posted by hutchiebug
Update: I applied online and last week and a few days later received a phone call from a Social Security Claims Specialist in Albuquerque, NM, requesting a copy of my HMRC letter that gives a history of my NI payments, and also my letter showing the amount of my pension. I also sent my very first pension statement that shows how my payment is made up.

I'm just waiting now to hear back from him.
I guess it's down to which office handles your claim. I was expecting at the very least to have to send a marriage certificate to claim a spouse pension, but as Mrs L and I both gave the same answer when asked on the phone when and where we were married, that was good enough. Likewise as Mrs L's private pension put her on maximum WEP I guess they saw no need to ask us to provide evidence of the amounts and that of her UK pension.

Hopefully your claim goes as straightforward as ours did from here on in.
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Old Oct 20th 2015, 7:12 pm
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Default Re: UK state pension and USA social security

Originally Posted by hutchiebug
Update: I applied online and last week and a few days later received a phone call from a Social Security Claims Specialist in Albuquerque, NM, requesting a copy of my HMRC letter that gives a history of my NI payments, and also my letter showing the amount of my pension. I also sent my very first pension statement that shows how my payment is made up.

I'm just waiting now to hear back from him.
Good luck, keep us updated.
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Old Oct 20th 2015, 9:58 pm
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Default Re: UK state pension and USA social security

I noticed we have a closed thread on here titled,"National Insurance Contributions how do you pay?"

Just wanted to provide a data point that wasn't listed in that thread. I've been sending Newcastle a cheque in U.S. dollars from my local bank every year for about seven years. I haven't checked with them lately, but they normally charge £10 in fees to convert to sterling. I pad the cheque by 10% to cover exchange rate shock.They hold on to the excess for me and apply it to the following years bill. I have no U.K. Bank account

Tony

Last edited by nearpost1; Oct 20th 2015 at 10:02 pm.
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Old Oct 20th 2015, 10:02 pm
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Default Re: UK state pension and USA social security

Originally Posted by nearpost1
I noticed we have a closed thread on here titled,"National Insurance Contributions how do you pay?"

Just wanted to provide a data point that wasn't listed in that thread. I've been sending Newcastle a cheque in U.S. dollars from my local bank every year for about seven years. I haven't checked with them lately, but they normally charge £10 in fees to convert to sterling. I pad the cheque by 10% to cover exchange rate shock.They hold on to the excess for me and apply it to the following years bill. I have no U.K. Bank account
Did you have to fill out a NI38 before you left England? I am currently trying to apply to be able to pay extra contributions. I left the UK over 7 years ago.
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Old Oct 20th 2015, 10:13 pm
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Default Re: UK state pension and USA social security

Originally Posted by mrken30
Did you have to fill out a NI38 before you left England? I am currently trying to apply to be able to pay extra contributions. I left the UK over 7 years ago.
Filled nothing out.I left in 1979, then approached them out of the blue in 2008. All I had was my N.I. Number. Hopefully you have that. Just write to dwp in Newcastle and get the ball rolling. Good luck!
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