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UK state pension and USA social security

UK state pension and USA social security

Old Jan 26th 2016, 3:57 pm
  #1036  
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Default Re: UK state pension and USA social security

I have read various pension taxation threads and realize that everyone's case seems to be slightly different.I would be grateful for some help please, I’ve been goinground and round on the IRS and UK.Gov sites and still can’t find a definitive answer.
I was 66 on Sunday and last year I took a lump sum from UK STATE pension to catch me up from the 65 pension age in theUKand am now getting a full monthly pension.
It’s the only income I get from the UK.
I can’t seem to find out if I have to pay tax on that UK pension here in the US.
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.
Apparently my yearly pension falls under the threshold of (approx)$15K/$16K for paying any tax in the UK.
My accountant who’s not used to this says I need a 1099Rfrom the UKbut because I don’t need to file taxes there I can’t get anything.
The IRS don’t take ‘international tax enquiries’ by phone.
Finally how would it be declared on my tax return,
I had no idea I had to declare pension income, either state or private and have also been receiving 2 x $600 (approx) for 14 years (since I've been here !!
Thank you to anyone who can hopefully simplify this for me.
To make things even more complicated, I was laid off inNovember and am currently fighting an unemployment claim
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Old Jan 26th 2016, 4:11 pm
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Default Re: UK state pension and USA social security

I do not pay tax on my UK State pension in the UK, I pay tax on it in the US. My CPA puts it on line 16 of form 1040, I believe some people put it on line 21. I keep a record of the value of my various UK pensions and give those to my CPA. As all are paid tax free from the UK my bank statements are sufficient to prove the value of the payments if I need to.

Last edited by lansbury; Jan 26th 2016 at 4:15 pm.
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Old Jan 26th 2016, 4:20 pm
  #1038  
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Default Re: UK state pension and USA social security

Thanks for your reply Lansbury.Any idea what % of tax you would pay on it or how they calculate it ?
Roger
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Old Jan 26th 2016, 4:34 pm
  #1039  
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Default Re: UK state pension and USA social security

Not sure if you are USC or GC holder but as you have been here for 4 years you are US resident for tax purposes. That means you are required to pay US taxes on your WORLDWIDE income, which includes pensions from abroad.

Being resident in the USA you should not be paying UK tax on your pension, and will not, provided you have told DWP you are no longer a UK resident.

If UK taxes have been paid, or will be paid, you can use the USA/UK tax treaty position on your US tax returns to get credit for those UK taxes paid, but only for your Federal taxes, States usually do not allow foreign tax offset.

UK income should be included on your 1040 under other income, even though you do not have a 1099 to show for it you are still required to declare it.

It looks like you need to file amended tax returns for the years you have received foreign income. You will no doubt be paying fines and interest on these amended returns unless you have any foreign tax credits you can use on your federal return. Your state returns will also need to be amended to show the income, they will come with their own special brand of delinquent penalties and interest.

This incidentally also includes any "UK tax free LUMP SUM" distributions, as here, although a "Lump Sum" distribution means the whole pension, the fact you can get a one time 25% or less tax free partial distribution in the UK is irrelevant, it is called a "lump sum" and as such the IRS will tax it based on it being a lump sum, even though it's not 100% of the pension value.

Sorry to be the bringer of such bad news.
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Old Jan 26th 2016, 4:35 pm
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Default Re: UK state pension and USA social security

Originally Posted by rogerpenycate View Post
Thanks for your reply Lansbury.Any idea what % of tax you would pay on it or how they calculate it ?
Roger
It is all part of our total income. Once deductions were taken off last year for Federal income tax we were in the 25% bracket.

You can look up the IRS tax brackets online. Unless you are close to one of the cut offs adding a UK State pension shouldn't put you over. You could probably estimate Federal tax on it as whatever highest % you pay now.

http://www.efile.com/tax-service/tax.../tax-brackets/

Last edited by lansbury; Jan 26th 2016 at 4:39 pm. Reason: added link to tax brackets
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Old Jan 26th 2016, 4:38 pm
  #1041  
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Default Re: UK state pension and USA social security

Originally Posted by rogerpenycate View Post
I’ve read about a treaty and it says that if I don’t have to pay tax on any earnings in the UK, I don’t have to pay tax on it here.
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.
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Old Jan 26th 2016, 4:40 pm
  #1042  
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Default Re: UK state pension and USA social security

A UK state pension paid to a US tax resident in only taxable in the US. It should be entered on line 16 of the 1040 as a foreign pension. You can also file a substitute 1099-R on form 4852 as you obviously won't get a 1099-R from HMRC.

You can ensure no UK tax is due by filing a US-Individual-2002 or if your UK taxable income is less than the UK personal allowance you can file an R43 to claim the personal allowance and the file a SA and show no UK tax due.

Your lump sum would not be covered by the "Lump Sum" Treaty article as it is part of a UK SS payment and not a pension payment.....and I have questions about the applicability of the lump sum article to any payment that is less than 100% of an account value anyway.

Last edited by nun; Jan 26th 2016 at 5:03 pm.
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Old Jan 26th 2016, 4:46 pm
  #1043  
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Default Re: UK state pension and USA social security

Originally Posted by theOAP View Post
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.
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.
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Old Jan 26th 2016, 5:04 pm
  #1044  
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Default Re: UK state pension and USA social security

Originally Posted by rogerpenycate View Post
My accountant who’s not used to this says I need a 1099R from the UK but because I don’t need to file taxes there I can’t get anything.
The 1099-R is a US tax form and UK institutions don't produce them, regardless of whether or not tax is withheld.

As others have said you need to report it on your US tax return as income.

I used to enter mine on line 16 of the 1040 which means creating a substitute 1099-R and guessing what figures and codes would go into the various fields of a 1099-R if you were actually receiving a 1099-R from a US company. You also have to complete another form explaining why you have created a substitute 1099-R and what efforts you have made to get the payer to send you a 1099-R. This is a bit tedious and about 3 years ago I was told that this line is actually intended for US companies and that I could be reporting it as Other Income on line 21, and label it as a Foreign Pension. I've been doing this the last few years. In my case it makes no difference to the bottom line as I have no tax free basis in my pension payments.
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Old Jan 26th 2016, 5:16 pm
  #1045  
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Default Re: UK state pension and USA social security

Originally Posted by durham_lad View Post
The 1099-R is a US tax form and UK institutions don't produce them, regardless of whether or not tax is withheld.

As others have said you need to report it on your US tax return as income.

I used to enter mine on line 16 of the 1040 which means creating a substitute 1099-R and guessing what figures and codes would go into the various fields of a 1099-R if you were actually receiving a 1099-R from a US company. You also have to complete another form explaining why you have created a substitute 1099-R and what efforts you have made to get the payer to send you a 1099-R. This is a bit tedious and about 3 years ago I was told that this line is actually intended for US companies and that I could be reporting it as Other Income on line 21, and label it as a Foreign Pension. I've been doing this the last few years. In my case it makes no difference to the bottom line as I have no tax free basis in my pension payments.
I've never gone through that rigmarole -- as you are doing now, I have always just reported it on line 21, though my accountant uses the note UK Pension.
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Old Jan 26th 2016, 5:58 pm
  #1046  
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Default Re: UK state pension and USA social security

As others have said, it is taxed as income and goes on line 16.
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Old Jan 26th 2016, 6:14 pm
  #1047  
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Default Re: UK state pension and USA social security

Originally Posted by durham_lad View Post
I used to enter mine on line 16 of the 1040 which means creating a substitute 1099-R and guessing what figures and codes would go into the various fields of a 1099-R if you were actually receiving a 1099-R from a US company. You also have to complete another form explaining why you have created a substitute 1099-R and what efforts you have made to get the payer to send you a 1099-R. This is a bit tedious and about 3 years ago I was told that this line is actually intended for US companies and that I could be reporting it as Other Income on line 21, and label it as a Foreign Pension. I've been doing this the last few years. In my case it makes no difference to the bottom line as I have no tax free basis in my pension payments.
The instructions on the 1040 say to report foreign pension income on line 16a and 16b...........but as long as there are no tax basis issues line 21 will work too.
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Old Jan 26th 2016, 6:32 pm
  #1048  
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Default Re: UK state pension and USA social security

Originally Posted by Nutmegger View Post
I've never gone through that rigmarole -- as you are doing now, I have always just reported it on line 21, though my accountant uses the note UK Pension.
This is the problem with CPAs , sometimes they just do what they think is correct. It's hard to know how to distinguish a good international CPA from one that just appears to be a good CPA
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Old Jan 26th 2016, 6:55 pm
  #1049  
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Default Re: UK state pension and USA social security

Originally Posted by mrken30 View Post
This is the problem with CPAs , sometimes they just do what they think is correct. It's hard to know how to distinguish a good international CPA from one that just appears to be a good CPA

Happily, the CPA with whom I have worked for a couple of decades has first-hand experience via a husband who worked in France for many years, a discerning international clientele, and knows just what she is doing.
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Old Jan 26th 2016, 7:42 pm
  #1050  
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Default Re: UK state pension and USA social security

Thank you for everyone's help.I've now got a clearer idea.It seems like I've got to pay the IRS on my hard earned UK pension.
GRRRRRRRRRRRRRRR !!
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