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UK state pension and USA social security

UK state pension and USA social security

Old Jan 1st 2018, 9:18 am
  #1456  
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Default Re: UK state pension and USA social security

Originally Posted by lansbury View Post
No, the same rules apply under the tax treaty about where pensions are taxed either way.



Not sure, hopefully someone living in the UK in receipt of a 401k will confirm what happens with those.
So if one is resident in UK, US social security only taxed in USA ? Is it reported in UK ?
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Old Jan 1st 2018, 3:12 pm
  #1457  
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Default Re: UK state pension and USA social security

Originally Posted by morpeth View Post
So if one is resident in UK, US social security only taxed in USA ? Is it reported in UK ?
We are US/UK citizens living in the UK and the US Social Security is not taxed in the USA but is taxed in the UK. On the 1040 in the US return it is reported but is not taxed, in the UK it is reported and taxed as a foreign pension. Not done this yet but am pretty sure that is how it is.
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Old Jan 1st 2018, 3:47 pm
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Default Re: UK state pension and USA social security

Originally Posted by morpeth View Post
So if one is resident in UK, US social security only taxed in USA ?
No I said it was only taxed in the UK.
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Old Jan 1st 2018, 6:22 pm
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Default Re: UK state pension and USA social security

Originally Posted by lansbury View Post
No I said it was only taxed in the UK.
Thanks, for some reason I find this whole pension issue somewhat changing to grasp.
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Old Jan 1st 2018, 7:44 pm
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Default Re: UK state pension and USA social security

Originally Posted by morpeth View Post
Thanks, for some reason I find this whole pension issue somewhat changing to grasp.
It can also be challenging (sorry, couldn’t resist).

You are right of course but HMRC have made it simpler from 2017 on, they used to only tax 90% of foreign pensions but now they tax it all.

IRA, Roth IRA, 401k...., lump sums, periodic payments, Roth conversions, SS WEP, all a constant source of debate and uncertainty.
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Old Jan 1st 2018, 8:14 pm
  #1461  
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Default Re: UK state pension and USA social security

Originally Posted by durham_lad View Post
It can also be challenging (sorry, couldn’t resist).

You are right of course but HMRC have made it simpler from 2017 on, they used to only tax 90% of foreign pensions but now they tax it all.

IRA, Roth IRA, 401k...., lump sums, periodic payments, Roth conversions, SS WEP, all a constant source of debate and uncertainty.
Hah guess you are right, if they tax it all quite easy. Seems a bit odd, if WEP kicks in to reduce my benefits, then the UK taxes them 100% if I am resident there, but then as long as I have to file a return in USA I have to report UK pension. Does receiving UK pension from the share from Class 3 contributions effect at all amount I receive from USA ?

Haven't even started to look at distributions from IRA and 401k, let alone effect of distributions from country without tax treaty with UK.
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Old Jan 1st 2018, 8:26 pm
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Default Re: UK state pension and USA social security

Originally Posted by morpeth View Post
Does receiving UK pension from the share from Class 3 contributions effect at all amount I receive from USA?
From discussions I have seen you can calculate the OAP sum you get from work as opposed to voluntary contributions. e.g. OAP received is £150/week based on 30 years of contributions of which 15 years were paid for by after tax voluntary class 2 or 3 contributions means that only £75/week should be used in the WEP calculation.

In my case I will be WEP’ed to the max based on my 2 UK private pensions, and I don’t have 30 years of SS contributions, only 23. (I wasn’t going to work another 7 years just to avoid WEP)
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Old Jan 1st 2018, 8:58 pm
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Default Re: UK state pension and USA social security

Originally Posted by durham_lad View Post
From discussions I have seen you can calculate the OAP sum you get from work as opposed to voluntary contributions. e.g. OAP received is £150/week based on 30 years of contributions of which 15 years were paid for by after tax voluntary class 2 or 3 contributions means that only £75/week should be used in the WEP calculation.

In my case I will be WEP’ed to the max based on my 2 UK private pensions, and I don’t have 30 years of SS contributions, only 23. (I wasn’t going to work another 7 years just to avoid WEP)
Thanks, maybe I should have looked at earlier, so I would be annoyed and confused about whole issue. I just thought that I could received US SS and OAP without one effecting the other. Now to go back and figure out how much was Class 3 and how much Class 1, report that and get penalized to some degree, is annoying but I guess no big deal- living in North East not expensive in any case, hah. The biggest issue I have found so far is limitation on how many hours I can work per month and whether I receive social security.
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Old Jan 1st 2018, 9:32 pm
  #1464  
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Default Re: UK state pension and USA social security

Originally Posted by morpeth View Post
Seems a bit odd, if WEP kicks in to reduce my benefits, then the UK taxes them 100% if I am resident there, but then as long as I have to file a return in USA I have to report UK pension.
Since this is a thread on Social Security:

If you are resident in the US and receive US SS, it is only taxed at 85% maximum. I have a question: on the worksheet for line 20b (taxable amount of SS) you use box 5, net benefits, for the amount taxable in the calculations. For those of you in the US, has box 5 been reduced by the deductions for Medicare Parts b ( if applicable), etc.? In other words, if you have no other benefits repaid (box 4), does box 5 = box 3?

For the resident in the UK, you use box 3 (or box 5 if it you wish - it makes no difference), benefits paid, on line 20a for the US 1040 return (and $0 for 20b). For the SA 106 UK return, and if box3 = box 5, you will use the total of the 12 monthly (UK tax year) payments (and since it is paid in £s, the exchange rate is not a factor) for the amount of US SS received.

As mentioned above, if the US SS benefit has been WEPed, it's a reduced amount. HMRC then tax you on 100% of this reduced amount (£ equivalent of boxes 3 and 5), so 15% above the maximum in the US. When you prepare your form 1040 for the IRS, you will not be able to take a tax credit for the amount of tax paid to the UK for the SS benefit. (1116 - you may only take credits for comparable taxable income and US SS is not taxable). You perhaps pay UK tax at the 40% rate.

OR questionably, and I don't expect anyone to admit to this, you could claim for UK purposes only the amount of £s received in the UK - disregarding the fact that it could be 'lite' by any deductions made for Medicare Parts B, etc.

In the Treaty, Social Security is covered in Article 17(3) which is excepted from the saving clause by Article 1(5)(2).

So, for the USC in the UK, it's probable the US SS has been WEPed, it is taxed in the UK (for some, including a 40% rate) on an additional 15% (over the US resident), and the tax paid can not be used as tax credits on a 1040/1116 return. It's not that I'm bitter.

(I'm really not bitter, it's just the way it is and I don't mind paying UK tax since I live here. - And, I don't have Med Part b, etc.)
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Old Jan 1st 2018, 10:05 pm
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Default Re: UK state pension and USA social security

Originally Posted by theOAP View Post
When you prepare your form 1040 for the IRS, you will not be able to take a tax credit for the amount of tax paid to the UK for the SS benefit. (1116 - you may only take credits for comparable taxable income and US SS is not taxable).
That's only if you opt in to the Treaty. You could forgo the Treaty and declare the US SS on your 1040 return with its 85% maximum taxable amount. You would then be able to claim (85% of) the UK tax credits for tax paid on 1116. For me (MFS and 40% UK rate), it makes no difference. I just end up with even more additional excess FTCs. For someone filing MFJ, it may be worth the exercise to see which yields the best result. It would likely still only result in additional excess FTCs, but in those years when you're close, it could make a difference.

I'm glad someone reminded us that filing the US return is simple.
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Old Jan 6th 2018, 2:45 pm
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Smile Re: UK state pension and USA social security

I wanted to make a comment about a post from earlier which I cannot locate.
I am UK resident and a non-US person. My US tax advisor has told me that periodic pension payments (such as from US social security) are taxable in the UK only in my case. He said that he suggests (he would, wouldn't he?) that I report to IRS, but that there is no obligation to do so. I guess it would just make things easier in the event of IRS questions if you did report to them. Since he is a CPA who specialises in this field, I assume he knows what he is talking about and I have full confidence in him. Just thought I would share this.
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Old Jan 6th 2018, 3:10 pm
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Default Re: UK state pension and USA social security

Originally Posted by Alexamck View Post
I wanted to make a comment about a post from earlier which I cannot locate.
I am UK resident and a non-US person. My US tax advisor has told me that periodic pension payments (such as from US social security) are taxable in the UK only in my case. He said that he suggests (he would, wouldn't he?) that I report to IRS, but that there is no obligation to do so. I guess it would just make things easier in the event of IRS questions if you did report to them. Since he is a CPA who specialises in this field, I assume he knows what he is talking about and I have full confidence in him. Just thought I would share this.
If you are a UKC, resident in the UK, and not a USC or US Person, and your only source of US income (or assets) is US SS paid to you by monthly payments to your UK bank account, you are not required to submit a US tax return.

Your situation may be different?
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Old Jan 6th 2018, 7:01 pm
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Default Re: UK state pension and USA social security

Originally Posted by theOAP View Post
If you are a UKC, resident in the UK, and not a USC or US Person, and your only source of US income (or assets) is US SS paid to you by monthly payments to your UK bank account, you are not required to submit a US tax return.

Your situation may be different?
My situation in relation to US source income is currently that I draw occasional lump sums from US IRA (which I declare to IRS and pay tax on). I am in process of starting drawing US Social Security, which is taxable in UK only for me. From what you are saying it would seem that I shall only need to report to IRS in years when I draw BOTH Soc Sec AND IRA lump sums?
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Old Jan 7th 2018, 1:04 am
  #1469  
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Default Re: UK state pension and USA social security

Originally Posted by theOAP View Post
Since this is a thread on Social Security:

If you are resident in the US and receive US SS, it is only taxed at 85% maximum. I have a question: on the worksheet for line 20b (taxable amount of SS) you use box 5, net benefits, for the amount taxable in the calculations. For those of you in the US, has box 5 been reduced by the deductions for Medicare Parts b ( if applicable), etc.? In other words, if you have no other benefits repaid (box 4), does box 5 = box 3?

For the resident in the UK, you use box 3 (or box 5 if it you wish - it makes no difference), benefits paid, on line 20a for the US 1040 return (and $0 for 20b). For the SA 106 UK return, and if box3 = box 5, you will use the total of the 12 monthly (UK tax year) payments (and since it is paid in £s, the exchange rate is not a factor) for the amount of US SS received.

As mentioned above, if the US SS benefit has been WEPed, it's a reduced amount. HMRC then tax you on 100% of this reduced amount (£ equivalent of boxes 3 and 5), so 15% above the maximum in the US. When you prepare your form 1040 for the IRS, you will not be able to take a tax credit for the amount of tax paid to the UK for the SS benefit. (1116 - you may only take credits for comparable taxable income and US SS is not taxable). You perhaps pay UK tax at the 40% rate.

OR questionably, and I don't expect anyone to admit to this, you could claim for UK purposes only the amount of £s received in the UK - disregarding the fact that it could be 'lite' by any deductions made for Medicare Parts B, etc.

In the Treaty, Social Security is covered in Article 17(3) which is excepted from the saving clause by Article 1(5)(2).

So, for the USC in the UK, it's probable the US SS has been WEPed, it is taxed in the UK (for some, including a 40% rate) on an additional 15% (over the US resident), and the tax paid can not be used as tax credits on a 1040/1116 return. It's not that I'm bitter.

(I'm really not bitter, it's just the way it is and I don't mind paying UK tax since I live here. - And, I don't have Med Part b, etc.)
I was curious , why would someone living in UK wish to pay for Medicare ? As some sort of back up ?
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Old Jan 7th 2018, 7:52 am
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Default Re: UK state pension and USA social security

Originally Posted by morpeth View Post
I was curious , why would someone living in UK wish to pay for Medicare ? As some sort of back up ?
Exactly. I pay my Medicare Pt. B every month. Now, in my case, I spend maybe seven months a year in the UK and five months (or so) in the US. But even if I'd fully relocated to Britain, I think I'd keep on paying Pt. B, at least for a few years - in case I changed my mind and moved back to the US. Remember there's a penalty, for each year you're eligible and don't pay, there's a cumulative 10% increase in the Medicare Pt. B premium.
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