UK state pension and USA social security
Jan 26th 2016, 6:45 pm
#1051
BE Forum Addict
Joined: Aug 2013
Location: Eee Bah Gum
Posts: 4,128
Re: UK state pension and USA social security
Nun, do the IRS instructions give some guidance on how to enter the numbers on line 16a and b? Using Turbotax it requires pensions to be reported on a 1099-R and hence down the substitute form and explanation route. If the IRS expect foreign pensions to be paid on line 16a and b you'd think TurboTax would have some guidance on this while completing a return.
Jan 26th 2016, 7:53 pm
#1052
BE Forum Addict
Joined: Aug 2004
Posts: 4,754
Re: UK state pension and USA social security
So does he invent a PAYERS Federal ID number? What code does he put in for box 7?
Nun, do the IRS instructions give some guidance on how to enter the numbers on line 16a and b? Using Turbotax it requires pensions to be reported on a 1099-R and hence down the substitute form and explanation route. If the IRS expect foreign pensions to be paid on line 16a and b you'd think TurboTax would have some guidance on this while completing a return.
Nun, do the IRS instructions give some guidance on how to enter the numbers on line 16a and b? Using Turbotax it requires pensions to be reported on a 1099-R and hence down the substitute form and explanation route. If the IRS expect foreign pensions to be paid on line 16a and b you'd think TurboTax would have some guidance on this while completing a return.
The IRS gives the usual guidance as to how to calculate tax free basis and you would apply that to your foreign pension. It will come into play if you have already paid US income tax on contributions to your foreign pension.
When you file the substitute 1099-R I'd simply use common sense to fill in the fields...this might require manual filing.
Jan 26th 2016, 8:00 pm
#1053
BE Forum Addict
Joined: Aug 2013
Location: Eee Bah Gum
Posts: 4,128
Jan 26th 2016, 8:21 pm
#1055
Forum Regular
Joined: Mar 2015
Posts: 101
Re: UK state pension and USA social security
Yes, that's exactly what it says in the treaty.
Unfortunately, the treaty also has what's known as a "Saving Clause". The saving clause says that 95% of the treaty doesn't apply to anyone who is a US resident for tax purposes. That includes your statement above. Therefore, a UK State pension is taxable in the US.
Unfortunately, the treaty also has what's known as a "Saving Clause". The saving clause says that 95% of the treaty doesn't apply to anyone who is a US resident for tax purposes. That includes your statement above. Therefore, a UK State pension is taxable in the US.
Jan 26th 2016, 8:38 pm
#1056
BE Forum Addict
Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: UK state pension and USA social security
In the more distant past, nothing was said about entering foreign pensions on any particular line. Then, when foreign became the hot word in 2011 (first year of 8938 reporting), there was a specific reminder in either Pub. 17 or Pub. 54 (or both) to enter foreign pensions on lines 16a and 16b, although there were no specific details. Normal instructions contained directions for qualified and nonqualified pensions (see comment to nun below). In 2014(?), that reminder disappeared. It's not in the the pubs. for 2015 that I have found in a quick scan.
To be clear, there is only one method for figuring a basis in a foreign pension (nonqualified). You can not use the Simplified Method for US (qualified) pensions.
Jan 26th 2016, 8:54 pm
#1057
BE Forum Addict
Joined: Apr 2011
Location: The Shire
Posts: 1,117
Re: UK state pension and USA social security
The Social Security Article is one of the few that is excluded from the Saving Clause. That clause usually catches US citizens who are non US resident. However, because the Article covering SS is excluded from the Saving Clause, US citizens receiving US SS in the UK only have to pay UK tax on it......however, poor wording in the Article does lead to the unintended ability of the US to tax UK SS payments made to a US citizen resident in the UK.
The poster had made the following comment:
"I’ve read about a treaty and it says that if I don’t have topay tax on any earnings in the UKI don’t have to pay tax on it here."
I read that as a general statement of confusion, and not related to any particular item, and my response was to point out about the savings clause.
I shouldn't have put the "Therefore" as the first word in the final sentence "Therefore, a UK State pension is taxable in the US." It should have read "A UK State pension is taxable in the US."
Please, please don't ban me. Please. I were only trying to elp, gov. I'm a good person, really. I do my best as poor soul. Don't send me to the dungeon. I can't stand pain. I only want to be your friend. I can't stand the dark. I'm not perfect.
Now p*ss off.
Jan 26th 2016, 9:03 pm
#1058
BE Forum Addict
Joined: Aug 2013
Location: Eee Bah Gum
Posts: 4,128
Re: UK state pension and USA social security
It's not surprising that nun and the OAP are correct about where to enter a foreign private pension.
I had a look in the TurboTax support forum and found the following that confirms that a substitute 1099-R should be prepared, but if it can't be filed electronically the response suggests that reporting it as Other income will work. I think I'll try the 1099-R substitute route this year and see if I can get away with filing electronically, otherwise it's going on line 21 like I've done in previous years.
I had a look in the TurboTax support forum and found the following that confirms that a substitute 1099-R should be prepared, but if it can't be filed electronically the response suggests that reporting it as Other income will work. I think I'll try the 1099-R substitute route this year and see if I can get away with filing electronically, otherwise it's going on line 21 like I've done in previous years.
The best way is to enter the UK pension as a substitute form 1099-R:
1. Click on Federal Taxes.
2. Select Wages and Income.
3. Select “I’ll choose what I work on”.
4. Scroll down to Retirement Plans and Social Security”.
5. Select “IRA, 401(k), Pension Plans (1099-R).
6. On the screen “Tell Us Which 1099-R You Have”, there is a box “I need to prepare a substitute 1099-R”. Click on that box and continue.
For electronic purposes, the two letter state ID and zip code may be left blank, it should be fine for electronic filing. As to the Federal ID, UK pensions often do not have it, try entering nine 9s.
If electronic errors occur due to 1099-R data entry, please enter the pension in Miscellaneous income. As long as IRS has the pension reported and included in total income, it is not problematic. If your pension receives no special tax treatment, you are fine to report it in the miscellaneous income.
1. Click on Federal Taxes.
2. Select Wages and Income.
3. Select “I’ll choose what I work on”.
4. Scroll down to Retirement Plans and Social Security”.
5. Select “IRA, 401(k), Pension Plans (1099-R).
6. On the screen “Tell Us Which 1099-R You Have”, there is a box “I need to prepare a substitute 1099-R”. Click on that box and continue.
For electronic purposes, the two letter state ID and zip code may be left blank, it should be fine for electronic filing. As to the Federal ID, UK pensions often do not have it, try entering nine 9s.
If electronic errors occur due to 1099-R data entry, please enter the pension in Miscellaneous income. As long as IRS has the pension reported and included in total income, it is not problematic. If your pension receives no special tax treatment, you are fine to report it in the miscellaneous income.
Jan 26th 2016, 9:10 pm
#1059
BE Forum Addict
Joined: Jun 2002
Location: Virginia
Posts: 1,421
Re: UK state pension and USA social security
Jan 26th 2016, 9:21 pm
#1060
BE Forum Addict
Joined: Apr 2011
Location: Ohio
Posts: 1,834
Re: UK state pension and USA social security
Random thing I've been wondering, and since all the usual suspects are on this thread...
It's about WEP and lump sums. Am I right in thinking that the WEP calculation allows for someone having taken a foreign/ non-SS earnings funded pension as a lump sum rather than annuitized into a pension? If so, I assume some background actuarial work is done to notionally change this into a stream of pretend income payments, and WEP applied accordingly.
Assuming the above, how does it allow for time slip between the two transactions? Say, for example, someone takes their UK pension as a lump sum aged 55. Approaching age 70, they now apply for SS, and dutifully report that yes, they have at one time taken a lump sum in place of a pension, and supply details.
How would inflation be accounted for? And exchange rates for the lump sum, in order to even start the calculation - use the one for the year of the SS application, or the one from 15 years ago when the lump sum was crystallized into dollars, and declared as taxable income?
It's about WEP and lump sums. Am I right in thinking that the WEP calculation allows for someone having taken a foreign/ non-SS earnings funded pension as a lump sum rather than annuitized into a pension? If so, I assume some background actuarial work is done to notionally change this into a stream of pretend income payments, and WEP applied accordingly.
Assuming the above, how does it allow for time slip between the two transactions? Say, for example, someone takes their UK pension as a lump sum aged 55. Approaching age 70, they now apply for SS, and dutifully report that yes, they have at one time taken a lump sum in place of a pension, and supply details.
How would inflation be accounted for? And exchange rates for the lump sum, in order to even start the calculation - use the one for the year of the SS application, or the one from 15 years ago when the lump sum was crystallized into dollars, and declared as taxable income?
Jan 26th 2016, 10:02 pm
#1061
Joined: Apr 2005
Location: Milwaukie, Oregon
Posts: 9,965
Re: UK state pension and USA social security
You can stop that right now. It is difficult enough without bringing wonderings into it.
At a guess the value of the lump sum at the time it was paid. Historical exchange rates are on xe.com. The form 308 asks when the payment was made and through what period which would be "lifetime"
And exchange rates for the lump sum, in order to even start the calculation - use the one for the year of the SS application, or the one from 15 years ago when the lump sum was crystallized into dollars, and declared as taxable income?
Jan 26th 2016, 10:23 pm
#1063
BE Forum Addict
Joined: Apr 2011
Location: Ohio
Posts: 1,834
Re: UK state pension and USA social security
I see the whole thing as a giant logic puzzle to gameify, like playing financial Sudoku or chess. How best can I arrange my pieces for maximum yield, taking into account:
- tax relief on contributions into tax-deferred accounts now
- being in a much lower tax bracket later
- early retirement in our 50s
- a window of 8-12 years for 401k-Roth rollovers
- optimal AGI/MAGI for ACA subsidies
- timings to take various UK/ US state and private pensions, given WEP and taxes
- voluntary contributions into the UK state pension
Everyone has to have a hobby...
- tax relief on contributions into tax-deferred accounts now
- being in a much lower tax bracket later
- early retirement in our 50s
- a window of 8-12 years for 401k-Roth rollovers
- optimal AGI/MAGI for ACA subsidies
- timings to take various UK/ US state and private pensions, given WEP and taxes
- voluntary contributions into the UK state pension
Everyone has to have a hobby...
Last edited by kodokan; Jan 26th 2016 at 10:26 pm.
Jan 26th 2016, 10:47 pm
#1065
BE Forum Addict
Joined: Apr 2011
Location: Ohio
Posts: 1,834
Re: UK state pension and USA social security
I like the challenge of getting to grips with new tax/ investing regimes; we were in Switzerland before this. Luckily from a US reporting point of view, the Swiss allow people leaving the country to simply cash out their employer pensions paying a minuscule amount of tax (around 4%, from memory) - it's not only the tax-deferred deal of the century, but has vastly simplified my life! I'm pretty sure 'Swiss bank account' sets off many more klaxons than 'UK bank account'.
We still have dibsies on a small Swiss state pension based on NI/SS payments, which will keep us in cheese and chocolate in retirement (geographical arbitrage works very well here, as Swiss state pensions are subsistence level when spent in Switzerland but very generous everywhere else). Then there'll be two UK state pensions of some size depending on voluntary contributions; five private ones; Social Security; 401k/ IRA; regular savings... it's quite surprising how it all mounts up, in little dribs and drabs.
I have a very large Lifetime Spreadsheet to track it all.
