I’m confused by the varying information being posted about the the US tax liability of the payment of UK government Pensions paid to US Residents / Citizens. Different people seem to read article 17 and deduce different answers, so perhaps we can ask for the answer from those that have successfully filed. If I may I would like to address the following situation:Full time residents / citizens receiving SS for both partners.UK government paid to both partners based on working contributions prior to moving to the US.Previous UK employer pension paid to 1 personUS tax Basis, married filing jointly.UK basis no tax deducted from any pension.UK pension amounts declared to SS.Depending on which opinion you read, article 17 is designed to avoid being taxed twice (UK+US) but I suspect most people interested in Article 17 pay no UK tax because of the amounts being below any UK tax threshold and or non-residency.So, the questions are:Is a UK government pension not taxed in the UK subject to US tax liability or excluded under article 17?Does the same answer apply to private UK pensions (contributions from employee and employer?How is the pension correctly reported in Turbo Tax?Where can you download a copy of article 17?

To answer questions 1 and 2, the UK pension is subject to tax in the UK and not the US. This applies even though it may not be actually taxed in the UK because of any pensions exclusions there. Article 18 of the UNITED STATES-UNITED KINGDOM INCOME TAX CONVENTION states: "...any pension in consideration of past employment and an annuity paid to an individual who is resident of a Contracting State shall be taxed only in that State [the UK].." For question #3, to report the pension in TurboTax, report the full amount of the pension under the Social Security income section and then report the same amount (as a negative amount) as other income on line 21 of your 1040. You will also need to attach a form 8843 (which is not supported by TurboTax) to a file by mail copy of your return. Please follow these steps: On the Wages & Income screen, scroll down to Retirement Plans and Social Security. Click the Start/Revisit box next to Social Security (SSA-1099, RRB-1099) Click the Yes box on the screen, Did you receive Social Security or Railroad Retirement benefits in 2019? On the Tell us about the benefits you received screen, enter the amount of your foreign pension in Box 5. Back on the Wages & Income screen, scroll to Less Common Income. Click the Start/Revisit box next to Miscellaneous Income, 1099-A, 1099-C On the next screen, click the Start/Revisit box next to Other reportable income. Click the Yes box on the Any Other Taxable Income screen. On the next screen, enter the amount of your pension as a negative number. For Description enter “UK pension offset” (or something similar). The negative number will appear on line 21 of your return and will negate the entry for your UK pension. To exclude your UK pension from taxable income, you will have to include Form 8833 - Treaty-Based Return Position Disclosure. Unfortunately this form is not available in TurboTax. Download the form from the IRS website, complete it, and include it with your return. [You will have to mail in your return.]

if you paid a foreign tax on your British pension, you can claim a foreign tax credit on your US tax return to avoid double taxation. To claim your foreign tax credit, please follow the guidelines written by one of our agents LinaJ2020 as she has listed detailed instructions. Follow these closely. After this is entered, you will need to claim a foreign tax credit by doing the following: Click Federal >Deductions and Credits at the top of the screen Scroll down to Estimates and Other Taxes Paid and click on Show More Click on Start or Revisit next to Foreign Taxes and then select Yes Select Yes to the question "Have you already reported all of your foreign income?" and then click on Continue Select any applicable boxes to the question "Tell Us About Your Foreign Taxes" and then select Continue Then select "Take a Credit" to the question "Do You Want the Deduction or the Credit?" Select No to the question "Do all of the following apply to your foreign income?" Continue until you get to the section "Choose the Income Type" and then select the appropriate income category. Click Continue. Add the country and continue through the sections, answering any applicable questions. Keep going until you get to the section "Foreign Taxes Paid" and then enter your foreign taxes and the date. (See screen shot below)

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britgeezer

Solved

UK Goverment Pension and Private Pension - Tax free in US or not?

Forum|Forum|6 years ago
February 3, 2020
5 replies
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I’m confused by the varying information being posted about the the US tax liability of the payment of UK government Pensions paid to US Residents / Citizens. Different people seem to read article 17 and deduce different answers, so perhaps we can ask for the answer from those that have successfully filed.

If I may I would like to address the following situation:

Full time residents / citizens receiving SS for both partners.
UK government paid to both partners based on working contributions prior to moving to the US.
Previous UK employer pension paid to 1 person
US tax Basis, married filing jointly.
UK basis no tax deducted from any pension.
UK pension amounts declared to SS.

Depending on which opinion you read, article 17 is designed to avoid being taxed twice (UK+US) but I suspect most people interested in Article 17 pay no UK tax because of the amounts being below any UK tax threshold and or non-residency.

So, the questions are:

Is a UK government pension not taxed in the UK subject to US tax liability or excluded under article 17?
Does the same answer apply to private UK pensions (contributions from employee and employer?
How is the pension correctly reported in Turbo Tax?

Where can you download a copy of article 17?

Best answer by Irene2805

To answer questions 1 and 2, the UK pension is subject to tax in the UK and not the US. This applies even though it may not be actually taxed in the UK because of any pensions exclusions there.

Article 18 of the UNITED STATES-UNITED KINGDOM INCOME TAX CONVENTION states: "...any pension in consideration of past employment and an annuity paid to an individual who is resident of a Contracting State shall be taxed only in that State [the UK].."

For question #3, to report the pension in TurboTax, report the full amount of the pension under the Social Security income section and then report the same amount (as a negative amount) as other income on line 21 of your 1040. You will also need to attach a form 8843 (which is not supported by TurboTax) to a file by mail copy of your return.

Please follow these steps:

On the Wages & Income screen, scroll down to Retirement Plans and Social Security.
Click the Start/Revisit box next to Social Security (SSA-1099, RRB-1099)
Click the Yes box on the screen, Did you receive Social Security or Railroad Retirement benefits in 2019?
On the Tell us about the benefits you received screen, enter the amount of your foreign pension in Box 5.
Back on the Wages & Income screen, scroll to Less Common Income.
Click the Start/Revisit box next to Miscellaneous Income, 1099-A, 1099-C
On the next screen, click the Start/Revisit box next to Other reportable income.
Click the Yes box on the Any Other Taxable Income screen.
On the next screen, enter the amount of your pension as a negative number. For Description enter “UK pension offset” (or something similar).

The negative number will appear on line 21 of your return and will negate the entry for your UK pension.

To exclude your UK pension from taxable income, you will have to include Form 8833 - Treaty-Based Return Position Disclosure. Unfortunately this form is not available in TurboTax. Download the form from the IRS website, complete it, and include it with your return. [You will have to mail in your return.]

I

Irene2805Answer

To answer questions 1 and 2, the UK pension is subject to tax in the UK and not the US. This applies even though it may not be actually taxed in the UK because of any pensions exclusions there.

Article 18 of the UNITED STATES-UNITED KINGDOM INCOME TAX CONVENTION states: "...any pension in consideration of past employment and an annuity paid to an individual who is resident of a Contracting State shall be taxed only in that State [the UK].."

For question #3, to report the pension in TurboTax, report the full amount of the pension under the Social Security income section and then report the same amount (as a negative amount) as other income on line 21 of your 1040. You will also need to attach a form 8843 (which is not supported by TurboTax) to a file by mail copy of your return.

Please follow these steps:

On the Wages & Income screen, scroll down to Retirement Plans and Social Security.
Click the Start/Revisit box next to Social Security (SSA-1099, RRB-1099)
Click the Yes box on the screen, Did you receive Social Security or Railroad Retirement benefits in 2019?
On the Tell us about the benefits you received screen, enter the amount of your foreign pension in Box 5.
Back on the Wages & Income screen, scroll to Less Common Income.
Click the Start/Revisit box next to Miscellaneous Income, 1099-A, 1099-C
On the next screen, click the Start/Revisit box next to Other reportable income.
Click the Yes box on the Any Other Taxable Income screen.
On the next screen, enter the amount of your pension as a negative number. For Description enter “UK pension offset” (or something similar).

The negative number will appear on line 21 of your return and will negate the entry for your UK pension.

To exclude your UK pension from taxable income, you will have to include Form 8833 - Treaty-Based Return Position Disclosure. Unfortunately this form is not available in TurboTax. Download the form from the IRS website, complete it, and include it with your return. [You will have to mail in your return.]

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britgeezerAuthor

Thank you for the concise answer.

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britgeezerAuthor

Is there any change to the Plus / Minus instruction from last year.. TT doesn't seem to handle it the same way.

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linaj20201

If you believe your UK pension is exempt, you should file the Form 8833.

Per instructions of Form 8833, page 3, the third column, it says:

"Positions for which reporting is waived include, but are not limited to the following.

That a treaty reduces or modifies the taxation of income derived by an individual from dependent personal services, pensions, annuities, social security, and other public pensions, as well as income derived by artists, athletes, students, trainees, or teachers;"

See image

@Riverview1303

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ER275

I too am confused. Article 18 provides that the pensions or annuities will be taxed in the recipients Contracting nation state. Therefore in my case I have a company pension from the U.K. and my wife and I each receive a state pension, all of which is taxable in the U.S as we are resident in the U.S and citizens. The purpose of the treaty is to avoid double taxation, not any taxation! That would be nice! The pensions are not exempt from U.K. tax so they become subject to U.S. tax for a U.S. resident as I read it.

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MovedtoNZ

Agreed ER,

I think that the "best answer" in this thread is incorrect, although the DTA that I have knowledge of is the US/NZ DTA rather than the US/UK DTA. The DTA states that the country that you have residency in, has sole taxation rights to private pensions. I "think" that if I am reading the US/UK DTA correctly, it similar to the US/NZ DTA where the public pension is taxed in the country of origin (for example US social security payments gets taxed only by US despite one having residency in NZ). For the US/UK DTA, both articles 17 and 18 have applicability for you.

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britgeezerAuthor

To understand the full situation and how bad it is for us retiring here, over and above article 17 &18 you also need to consider the IRS document "The agreement between the US and United Kingdom document" (Windfall Agreement) and its sister document "Windfall Elimination".

Having consulted with several experts here is what I understand. Assumption - you are a US resident or Citizen.

Income from UK Social Security from DWP and private pensions if not taxed in the UK, is taxable in the US as ordinary income.
Most experts say don't bother to create 1092-R's to report, just include it as other income. The net result is the same, just the paper work is less onerous. Now more bad news....
UK DWP and Private Pension is used to calculate a reduction in any eligible US SS payments. I'm not sure of the calculation and SS determine the exchange rate and will not tell you or vary it.
This additional income will increase MAGI and so probably also increase IRMAA for Part B and Part D premiums.
If the income is not declared and they find out they will claw back "over-payment" they made through SS.

So folks your UK DWP and Private Pensions are not only subject to US tax, but will reduce your SS payments and potentially increase Medicare Part B and D costs.

Anybody fancy going to a Tea party?

If any Tax Professional with experience in successful rebuttable of UK Pension taxation in the US would like to comment please do.

I would love to receive confirmation and save a bunch of money now I'm on fixed income.

DaveF1006

if you paid a foreign tax on your British pension, you can claim a foreign tax credit on your US tax return to avoid double taxation. To claim your foreign tax credit, please follow the guidelines written by one of our agents LinaJ2020 as she has listed detailed instructions. Follow these closely.

After this is entered, you will need to claim a foreign tax credit by doing the following:

Click Federal >Deductions and Credits at the top of the screen
Scroll down to Estimates and Other Taxes Paid and click on Show More
Click on Start or Revisit next to Foreign Taxes and then select Yes
Select Yes to the question "Have you already reported all of your foreign income?" and then click on Continue
Select any applicable boxes to the question "Tell Us About Your Foreign Taxes" and then select Continue
Then select "Take a Credit" to the question "Do You Want the Deduction or the Credit?" Select No to the question "Do all of the following apply to your foreign income?"
Continue until you get to the section "Choose the Income Type" and then select the appropriate income category. Click Continue.
Add the country and continue through the sections, answering any applicable questions. Keep going until you get to the section "Foreign Taxes Paid" and then enter your foreign taxes and the date. (See screen shot below)

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

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rromanis

In years past we have entered our payments as a lump sum in line 8 of Schedule 1. How do we do that in this paperwork???

MaryM428

In TurboTax search for foreign income then jump to foreign income

Say yes to have income from a foreign country
For form reported on, select a statement from a foreign employer (could be cash)
Enter your pension amount and continue through the foreign income screens.