saturn5man

Hi folks, I'm a returning 'oldie' to this forum and wonder if there's someone here with personal experience of this:

I have Permanent Residence in the US (Though still a UK Citizen) and for several years now I have been in receipt of a Retirement Pension from my former UK employer.

This pension is taxed in the UK each month and I receive the residue into my UK bank account, from which I have money transferred to the US each month.

My wife (full US Citizen) and I use a Tax Professional to complete our annual US Returns (Federal and State) and since I began receiving the UK Pension our Tax Professional has allowed for deductions of further tax on my UK Pension, for both Federal and State.

I have queried this with her several times and each time she insists that she has consulted with their International Taxation Specialist (it's a big, well-recognized firm) and each time she says that yes, I AM liable for further (US) tax on the amounts I am paid from the UK.

I am aware of the Double Taxation Agreement between the US and UK and I thought this Agreement was to avoid one being taxed twice on the same Pension.

Could anyone with experience of this please enlighten me, or point me to an exisiting forum on this topic?

Oh, by the way, I am not yet eligible for the UK State Pension, so I only have this one, from my former employer, currently.

My wife works full-time and I work part-time, both of us in the US. Our US returns are expressed as Married, Filing Jointly".

Many thanks !

lansbury

Have you claimed for the exemption from UK income tax.

See http://www.hmrc.gov.uk/CNR/app_dtt.htm

and for the forms http://www.hmrc.gov.uk/CNR/usdownload.htm

At present if you are paying tax in the UK that can be used to offset US tax. You do not pay tax in both the UK and USA, but if the US tax was higher than the UK I think you pay the UK tax and the difference in the US.

saturn5man

Hey...Thanks for that, lansbury
You are right, I think, as I don't pay the full US Federal or State taxes on my UK Employer Pension (as well as paying UK Tax). It's more that I seem to pay a 'surcharge', which, as you say, might well be the difference between a 'higher' US requirement and a lower UK one (of tax liability).

Funny really, as I'd always thought the US income tax regime would be 'cheaper' than the UK one. Of course, here in NC (and many other States) we have State income taxes as well as Federal ones.

Anyone else concur with all of this?

farmerwife

Well it would be interesting to know if your "Tax Professional" is a CPA, or group of CPAs, as opposed to a "Tax Professional" aka "blockheads".
The local version of the latter are called Liberty something and advertise by having people stand out in the rain all day wearing outfits made to look like the statue of Liberty, waving placards.
If they are the former I would say they have a better idea than the dressed up guys.

saturn5man

Well, my guys have been on the Block for a while (I believe) and therefore I have tended to trust what I have been told...at least, thus far. As nobody likes paying more tax than they feel the authorities should have, then I am looking to see if there's any way my liability can be reduced....whilst of course paying what I have to

Thanks for your contribution, farmerwife

PS.I wonder what they pay those poor souls who have to leap-around in those Statue outfits? !

Sentosa

We have been receiving a private pension from my husbands British company for 14 years. If you are paying tax in the U.K on the pension, you do not have to pay tax on it the U.S. because of the dual tax aggreement.
However 4 years ago when we stopped working completley we decided we were better off paying U.S tax,we now have to send in the form 8802 to the IRS at a cost of $35 and they send back a certificate which we take when we get the taxes done.
We get our taxes done for free by AARP you don't have to be a member or be over a certain age it is free to everyone, check out with your local library. They are great and their computers are directly linked to the IRS. We got a rebate this year.

Zonie

I don't understand your middle paragraph. In order to be exempt from UK taxes you complete an HMRC form US-Individual 2002 and an IRS Form 8802 together with a check for $35 and send them both to Philadelphia. The IRS send the certified form to HMRC who eventually write to you stating your pension is exempt from UK tax. You then just declare the pension on your US tax return and pay the tax on it.

lansbury

Spot on with the exception you can also pay the $35 online if you want to. As a guide I sent the forms to the IRS on December 3rd and have just been informed by HMRC that they have received the certificate from the IRS and are considering my exemption request.

SamuearlJackson

I expect that the way the taxes are being done is by taking the foreign tax credit with form 1116. There is a worksheet to go along with this to figure out how much of the foreign tax paid you can claim to reduce your US tax burden. From what I remember about figuring the tax, you work out your expected US tax burden as a % of your income on line 41 (I think) of form 1040. You cannot take more foreign tax credit than this % of your foreign source income. If your foreign tax rate is less than your US tax rate you will owe the IRS extra.

Here's an example:
Say you have $50k on line 41 and your calculated US tax burden is $5000. You get 10%. You had $10k in foreign source income that was taxed at 20%, so $2k in foreign taxes. You can only claim 10% x $10k = $1k in foreign tax. It would have been better to not pay the foreign tax and be taxed at the marginal rate of 15% for a married filing jointly couple.

If the calculated US tax burden were greater than the tax rate paid on the foreign source income then you would owe taxes on top of what was paid in the foreign country to the IRS.

Anyway, that's what I remember from the top of my head. I may have a few details wrong...