US tax help
 

I have been in the US since 2007, married to US citizen and just became a US citizen myself in January this year.
I usually file our taxes, married filing jointly.
I am a bit confused about how to enter information for my UK SIPP that I opened last year and would welcome any help.
I have already submitted a FBAR form but not sure which form I should use for my taxes.
I think, from everything I have read I should use form 8938 since the amount is over the reporting threashold.
Looking at that form I am not sure how to complete it, I just transferred all my money from a UK pension into the sipp and I havent taken out any money.
When I looked at the turbo tax site I have to pay to use the form 8938, I can fill it in myself on OLT tax site but wasnt sure if this was correct form.
If that is the correct form do I just enter the amount in other income but then it asks for schedule and line. I assume it's schedule 1040 but I dont know which line.

Re: US tax help
 

All foreign pensions should be reported on an FBAR and on Form 8938 (with your taxes) if the relevant thresholds are exceeded. The only exceptions are those pensions with no known cash value and that would be the UK state pension and potentially a defined benefit plan managed by an employer so long as an equivalent cash value has never been declared. A transfer value would be an example of an equivalent cash value and would make an employer defined benefit plan reportable. SIPPs, defined contribution plans, private pensions, the old AVCs and FSAVCs, and contracted out SERPS plans need to be to be reported if the aggregate value of all pensions exceeds the stated thresholds for each form. To be safe I always advise that employer defined benefit plans are always reported, with a $0 value if there has never been an equivalent cash value documented. Better safe than sorry, and no one ever got penalized for over reporting.

With regard to your SIPP, some will advise that it is a foreign grantor trust and subject to reporting on Form 3520 instead of Form 8938. Form 3520 is a very complex form to complete. The IRS has never made a definitive statement regarding whether to report SIPPs on Form 3520 or on Form 8938. To the best of my knowledge, the IRS has never penalized anyone for using Form 8938 vs Form 3520 for a SIPP. For those reasons many (most I think) report using Form 8938. I check the “other” box because a pension is neither a deposit nor a custodial account. Have been doing so for years with no issues.

Unless your previous pension (whatever you transferred into the SIPP) was a defined benefit plan with no known cash value then you should have been reporting this account for all prior years that you exceeded the thresholds. If applicable, you may want to look into fixing that deficiency, because the fines for failing to do so can be quite severe. Filing Form 8938 and/or FBARs for the first time after prior years with none could be a red flag to anyone looking to find such deficiencies, and easy to find. With the current emphasis on making the government more efficient that would be a quick win and much more likely to be detected than in prior years.

Do not declare the transferred amount as other income on your 1040. That will make the whole transfer taxable in 2024. Perhaps you are referring to Part III of Form 8938 where it requires that you identify the Form/Line or Schedule/Line for taxable items. That would not apply to your SIPP if there are no withdrawals because there is no taxable income until you withdraw. A transfer from one pension plan to another is not a taxable event.

Transferring the old plan into a SIPP means that you had a cash value, and that old plan also needs to be declared on the 2024 FBAR and Form 8938.

Re: US tax help
 

Many thanks for your helpful reply.
I only realised last year when I transferred the pension to a SIPP that I should have been reporting it all along on my taxes.
I did send a FBAR form last Sept after the transfer that was accepted and I just did another this week.
I understand what you are saying now about the 8938 form, so thankyou very much for the information and I'll hopefully get the taxes done correctly yhis year

Re: US tax help
 

First time for me to report payments from a UK local government pension scheme (Strathclyde Pension Fund) - what needs to be entered on 8938? Part III, box 14 (other foreign assets) d (other income)?

And then what part of the 1040 - Income h (other earned income)? The 1040 instructions don't help here, foreign pensions are not mentioned. But if not here, where?

Thank you in advance!!!

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Re: US tax help
 

Assuming the pension is a normal defined benefit scheme where there is no longer any underlying fund then I don’t believe you need to report the income on Form 8938 because it is no longer an asset as such (it’s just income). However, if you started the pension in 2024 and previously declared the pension on Form 8938 then, as before, I would report the income on Line 13 or 14 (depending upon what type of account you reported it as) for tax year 2024 because it was an asset for part of that year before the pension commenced. I wouldn’t report on Form 8939 for subsequent years.

On the 1040, probably easiest to declare as other income, unless some of it is not taxable (unlikely) and then I personally would report on Line 5 Pensions and Annuities because you can separate out taxable and non taxable income that way. You need to create a substitute 1099-R which is fairly easy if using Turbo Tax. Others will do it differently, declaring it as other income, and entering a negative amount for the non taxable part. Either will work, I just personally think that Line 5 documents the situation better, but opinions will vary. The bottom line is so long as you declare it somewhere, and pay the correct tax no one will care how it is reported.

Re: US tax help
 

No, I never filed 8938 before, as only just started receiving payments. On the 1040, I see line 5 - don't know how I missed that. It's not being being taxed, so do I really need a substitute 1099-R? I'm using FreeTaxUSA and it won't accept a 1099 without a valid PAYER'S ID - not applicable here.

TY

Re: US tax help
 

If it is all taxable, and it almost certainly is, then keep it simple and declare as other income. No need for 1099-R or anything else. The 1099-R would only be useful if any tax was withheld (which it won’t be)or for whatever reason part of the payment is not taxable (very unlikely). No need for Form 8938.

Re: US tax help
 

Thank you so much!

Re: US tax help
 

I was just wondering about UK state pension.
This isn't relevant for me this year, I wont start getting uk state pension until June this year.
I'm thinking in advance for next years taxes and want to be prepared.
Will I need to declare uk state taxes somewhere on my US tax form and if so, where do I enter it.
This will be the only state pension that I will be receiving since I don't have enough years to qualify for social security but have the maximum UK years, 39 years. Not sure if that makes a difference.
Many thanks

Re: US tax help
 

It goes under "other income" -- used to be line 5, but can't remember if it still is! Someone will correct me if not, I'm sure . . .

Re: US tax help
 

As you might have guessed, I've been working on this too.
Can you share some more info- how long have you lived in the USA and are you a citizen? You typically won't pay UK tax if you're a resident or citizen of the US. But you'll have to check your pension payslip to see if HMRC is taxing you, if they are then you can get that back, but's a bit complicated. We can point you in the right direction if so.

I'm not sure you need to declare UK taxes, but you definitely need to report the pension as income in the USA.
Where to enter it might depend on your tax software, if you use software. I use FreeTaxUSA and they have a section for Miscellaneous Income. That puts my pension on Schedule 1 Part 1 line z. Then the total from Schedule 1 goes on 1040 line 8

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Re: US tax h
 

Assuming you are a US resident you should not be paying UK taxes on any pension income. The US has the first right to tax all UK pensions (and does do). If UK tax is collected then you are required to claim it back from HMRC rather than declare it as foreign tax paid on your US tax return.

The above is fact. What follows is how I think taxation of UK pension income works, but don’t have enough data points to state this with 100% certainty. If others know differently please update or correct this.

Keeping it simple, the UK does not deduct tax directly from the UK state pension. Therefore if the UK state pension is your only UK income then no tax will be deducted at source by the UK. However, if your pension payment exceeds the tax free personal allowance which is £12,570 per year or £241.73 per week then they will eventually send you a Simple Assessment Tax Bill. To avoid that you should apply for an NT code, more on that later.

The maximum new basic state pension at £221.20 is a little below the personal allowance of £241.73 per week and would therefore be tax free within the UK and no bill would be sent. However if you built up a SERPs allowance in the past it is possible that your pension amount will exceed that. Your state pension forecast will identify what you will receive. If less than £241.73 and you have no other UK income you will have nothing to do, other than declare the income on your US tax return, and pay the relevant tax to the US.

If you do have other UK income then they will normally adjust the UK tax code allocated to that other income to collect the tax due on the state pension, thus collecting it indirectly. They do so by reducing the amount of tax free income you can receive each pay period. If you have multiple sources of UK income they will adjust just one of those tax codes. HMRC gets automatic notification that you are in receipt of the state pension and will do that without your input. To avoid UK taxation on that other income (and the UK state pension) you need to apply for an NT code. Without an NT code, the default code reflects the fact that you are allowed tax free income up to the current personal allowance and is applied every pay period, meaning that if you get a monthly payment then you are allowed £12,570/12 or £1,047.5 per month tax free. Any amount above that will be taxed at source by the UK. When you receive the UK state pension that tax free amount will be reduced by the amount of your state pension thus the tax will be collected by the other source and sent onto HMRC.

An NT tax code means that No Tax is to be deducted (by the UK). To get an NT code you need to fill in the Form DT-Individual available from HMRC, details here.https://www.gov.uk/government/publications/double-taxation-treaty-relief-form-dt-individual.. You complete the form and send it to the IRS along with Form 8802, and for a fee they validate and send onto HMRC. It takes 3 to 6 months or more, so not fast, and you can only apply when you have a UK income source in payment, not before. The same form allows you to apply for a refund of any UK tax paid. Others are more familiar with that process and will be able to comment in more detail.

Re: US tax help
 

FreeTaxUSA will accept all "9"s in the PAYER'S ID field.

Re: US tax help
 

Many thanks for the replies.
I have been living in the US since 2007 and became a US citizen in January this year.
I will only qualify for the basis state pension from UK, 221.20, so that should be tax free in uk and no bill sent if I understand your replies correctly.
I have used OLT.com for our taxes for the last few years and there is a section for other income, so sounds like it shoudl be fairly simple.
Again, many thanks

Re: US tax help
 

I did try that, and all "1s" too, but didn't feel comfortable cheating their system, in case it generated a flag at IRS.

"Miscellaneous Income" is what I used in the end

Thanks!