UK state pension and USA social security
#916
BE Forum Addict
Joined: Apr 2011
Location: Ohio
Posts: 1,834
Re: UK state pension and USA social security
'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
#917
Re: UK state pension and USA social security
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.
#918
Forum Regular
Joined: Jun 2012
Location: Seattle
Posts: 90
Re: UK state pension and USA social security
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.
Thanks
Last edited by nearpost1; Oct 18th 2015 at 3:39 am.
#919
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Joined: Aug 2013
Location: Eee Bah Gum
Posts: 4,099
Re: UK state pension and USA social security
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.
#921
Re: UK state pension and USA social security
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.
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.
#922
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
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
#923
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Joined: Apr 2011
Location: The Shire
Posts: 1,117
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.
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.
#924
Re: UK state pension and USA social security
I'm just waiting now to hear back from him.
#925
Forum Regular
Joined: Jun 2012
Location: Seattle
Posts: 90
Re: UK state pension and USA social security
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'm just waiting now to hear back from him.
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.
#926
Re: UK state pension and USA social security
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'm just waiting now to hear back from him.
Hopefully your claim goes as straightforward as ours did from here on in.
#927
BE Forum Addict
Joined: Aug 2013
Location: Eee Bah Gum
Posts: 4,099
Re: UK state pension and USA social security
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'm just waiting now to hear back from him.
#928
Forum Regular
Joined: Jun 2012
Location: Seattle
Posts: 90
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
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.
#929
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
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
#930
Forum Regular
Joined: Jun 2012
Location: Seattle
Posts: 90
Re: UK state pension and USA social security
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!