Re: UK state pension and USA social security
 

Yes, I suppose its not worth the struggle to get the IRS to swallow my theory!

Re: UK state pension and USA social security
 

I can see exactly where you are coming from and there are annuities in the USA that you can pay into using after-tax money then convert them to a monthly drawdown and the 1099-R each year will show a taxable amount that is different from the gross amount since the benefits paid will be a combination of return of contributions (tax free) plus earnings (taxable). Unfortunately there is no way of telling how much of your UK OAP is a return of after-tax voluntary contributions and how much is due to growth on those contributions. I'm afraid you are stuck with paying the US taxes since you pay no UK tax.

The closest the UK has to a Roth is an ISA into which after tax money goes and it is all tax free when you draw it out but the US doesn't recognize that either.

Look on the bright side, at least the UK doesn't tax your worldwide income no matter where you live.

Re: UK state pension and USA social security
 

I have occasionally pondered similar ideas, but It’s definitely not worth the struggle. On one hand no one may ever look at your tax return in which case you would benefit, but to make the argument you are significantly increasing the probability that your return will be kicked out for manual review in which case you will lose and shine a large spotlight on your tax return as whole. The benefit and risk are way out of proportion to each other. Best to just cough up!

Re: UK state pension and USA social security
 

How many years of US SS contributions have you made?

Re: UK state pension and USA social security
 

Thank you for the reply.

From what our CPA did last year, it appears that I need to declare all of it in one form, and then add a 1116 Foreign Tax Credit to declare what isn't taxable according to the IRS's definition of non-taxable unearned income. Or something like that anyway, not quite sure, but I am currently plowing my way through the 2021 forms to figure it all out.

Re: UK state pension and USA social security
 

This all relates to my husbands side of our taxes, as he's the one from the UK.
He made the full required number of years of UK payments, many of them voluntary, and we pay no taxes in the UK.
Here, he paid into US SS from 1986 through 2021, but only his first 8 to 10 years in the US corporate world produced the income that brings the sort of SS tax payment required to declare it not subject to the Windfall Tax. In 1995 he became self employed, and much happier, but the rest of his SS tax payments were below the Windfall exemption amount (something you only learn when you reach the age to retire).

It's my understanding that the only way you can collect both the UK and the US versions of Social Security without any penalty/deduction on the US side, is if you've either had:
-- 30 years of "substantial earnings", in which case you paid a minimum required amount of Social Security Tax each year, as per a chart that the US SS department maintains for that purpose. If you made less than is on their chart, then you didn't pay the minimum of social security tax that is required to make that year exempt. Or, in my husband's case, as a self employed person, if you take enough deductions against your income to reduce your declared income below the "substantial earnings" for that year. So you save money in tax payments, but don't meet the required amount to be declared exempt for that year for eventual WEP penalties. (One of the things you only learn after you retire).
--or if most of your payments into UK National Pension are voluntary (in which case the UK benefits are from "Unearned Income", which US SS does not tax),
--or if you quality as a spouse of a UK Pensioner born before a cut off date in the early 1950's, and receive a spousal pension, in which case the IRS considers it untaxable "unearned Income" (as long as the spouse never earned income in the UK).

Re: UK state pension and USA social security
 

As everyone states, you are confusing WEP and income tax, the two issues are not related. The department of Social Security will determine what your WEP reduction is based upon what you outline below. It sound like they have already done so.

From the tax perspective you pay tax on all worldwide income. There are exceptions for some UK government pensions (from employment not the UK state pension) but from what you have said this exception does not apply to you. The fact that a lot of the UK state pension was based upon voluntary contributions does impact the WEP calculation (which they have already accounted for) but does nothing to change the income tax due on the proceeds.You said you pay no tax in the UK, so unless you have other foreign income from other countries, or foreign investment income from mutual funds then there is no need to mess with Form 1116.

The bottom line is that the entire UK state pension is taxable.

Re: UK state pension and USA social security
 

This is a cautionary tale that needs wider distribution. I worked in 'corporate America' for over 30 years before becoming 'self employed' (set up a company). It was amazing how much I could deduct as expenses to reduce my tax liability, but ... if it wasn't for the fact I already had the long history of 'substantial contributions', I could have really impacted my SS amount and I'm glad I didn't (and that's not even considering the WEP implications). You probably still come out ahead by taking all those deductions, but it's not without consequence. The moral of the story is, if you go self-employed and take advantage of all the 'income reducing' opportunities, set some of that 'saving' aside for your retirement because you are screwing with your own retirement!

Re: UK state pension and USA social security
 

1. I thought I understood the potential WEP process until reading this lengthy thread but now my head is spinning. I was of the understanding 30 qualifying years (ie meaning I'd met the US SS qualifying earnings threshold table) meant no WEP would be applied but part of this thread appears to imply WEP is calculated based on how the given individual is situated at age 62. I'm still working, intending to claim US SS at 70 and deferring British state pension until 70. At age 70 I will have 31 qualifying years. Despite all of this will I still be WEPd?

2. In what order should I apply for the British and US state pensions so they both start at the same time? I was thinking of applying for UK 6 months before retirement and then four months prior to retirement apply for the US but got to thinking that one country might want more info about the another country's state pension ie the final $ amount - information which I might not necessarily have at the time.

Can anyone who's gone through this convoluted minefield of retirement planning shed any light on the questions? Thank you !

Re: UK state pension and USA social security
 

If you have 30 or more qualify years you will not be subject to WEP.

If you are not subject to WEP it doesn't matter which one you claim first. If you are subject to WEP IMHO claiming the UK one first makes it easier time wise for you as you should have all the information about it when you claim SS.

Re: UK state pension and USA social security
 

Great advice from Lansbury.

Re: UK state pension and USA social security
 

That's the way round that I did it. I knew I only had a very small UK pension, and that I was waiting until 70 to claim the US one, so I got on with claiming the UK pension as soon as I was eligible to do so.

Re: UK state pension and USA social security
 

Thank you Lansbury, Nutmegger and Glasgow Girl! I was second guessing myself as to what I was understanding.

Thanks all!

Re: UK state pension and USA social security
 

I remember that, and I was part of that discussion, but I have subsequently come to realize that I was wrong, and that it is the number of qualifying years of SS contributions that you have when you retire, not the number you have at age 62, that determines whether WEP is applied, and if so, how much.

Tip: as you're planning on working well past the usual retirement age, bear in mind that you can qualifying for "4 quarters" of SS contributions in a lot less than 12 months. .... I only discovered years later, but although I only started work in the US on November 12th, 2001, I was credited with 4 quarters of SS contributions for calendar year 2001. I was also credited with 4 quarters for 2002 despite quitting my job on June 28th and not working again in 2002.

How many quarters you get credited for is a function of how much you are paid, so what I described doesn't apply if you are low paid. I don't know what the relevant pay levels/ amounts are to get full SS credits for less than 12 months of work.

Re: UK state pension and USA social security
 

I see the following in the SSA website....