U.K State Pension to U.S citizen

I am a U.S citizen still working receiving a U.S pay check, U.S Social Security, and U.K State Pension.  On my U.S tax return a little less than 38% of the S.S.I is taxed due to my adjusted gross income.  I have to enter my U.K State Pension as line 21 "other income" which is taxed at my normal income tax rate of 15%.  The IRA man I spoke with says there is no treaty between the U.S and U.K to handle these payments more fairly.  Is there any way around this so that the U.K State Pension is taxed in a similar manner to my U.S SSI?

thanks!

Where do you live?

Live in the U.S

I assume you've filed a US-Individual-2002 with HMRC so that no UK tax will be withheld. Then, as you point out, the UK SS will be taxed in the US as a foreign pension and you enter it on line 21. You don't get to treat it like US SS.

FYI, have you informed the SSA about your UK SS so that they can see if the Windfall Elimination Provision applies to you?

You are correct, no UK tax is being witheld.

I have not informed the SSA about the UK SS.  I have not heard of the Windfall Elimination Provision but I will look up.

thanks!

I wouldn't officially inform SS about your UK pension until I understood all the consequences, including the exchange rate at the time of being WEP'd. Timing can be important.

someone may correct me if I am wrong, but it is my understanding that the WEP only applies if you are not eligible for SS on your own work record. If you have the required 40 quarters, WEP doesn't affect you at all.

I wouldn't officially inform SS about your UK pension until I understood all the consequences, including the exchange rate at the time of being WEP'd. Timing can be important.

I agree about understanding the consequences, but you should inform the SSA as soon as you start getting a non SS wage pension benefit so they can apply the WEP correctly.

someone may correct me if I am wrong, but it is my understanding that the WEP only applies if you are not eligible for SS on your own work record. If you have the required 40 quarters, WEP doesn't affect you at all.

Unfortunately you have to have over 30 years of contributions for WEP to not apply. I have 17 years of SS contributions and will be WEPed because of my UK SS. I once thought of making the argument that as my UK SS was paid for with voluntary contributions out of wages that had US SS withheld that I shouldn't be WEPed, but don't think that would work. Here are the exceptions.

"You are a federal worker first hired after December 31, 1983;
You were employed on December 31, 1983, by a nonprofit organization that did not withhold Social Security taxes from your pay at first, but then began withholding Social Security taxes from your pay;
Your only pension is based on railroad employment;
The only work you did where you did not pay Social Security taxes was before 1957; or
You have 30 or more years of substantial earnings under Social Security."

1. one problem is the 'substantial earnings'. SS defines it for each year. I missed one year by 50 cents, so that year of work wasn't counted.

2. you only get WEP'd once. So if you know you are getting a UK state pension of, say, #1000 a year and know you will get a UK private pension of #10,000 a year, you'd want to start receiving the UK state pension, get WEP'd, then start receiving the UK private pension.

3. the exchange rate of WEP is the day the administrator does your case. And it can never be  changed.  So if the exchange rate is $2.00 your #1000 UK state pension will be equal to $2000. If it's $1.5 your UK state pension will be valued at $1500 (remember - this will result in a lifetime decrease in your SS payments so it's in your interests to have that value as low as possible).

4. Best to deal with SS in Baltimore about all these issues.

someone may correct me if I am wrong, but it is my understanding that the WEP only applies if you are not eligible for SS on your own work record. If you have the required 40 quarters, WEP doesn't affect you at all.

Unfortunately you have to have over 30 years of contributions for WEP to not apply.

Nun is correct, but just to be clear, if you qualify for SS on your own work record (10 or more years) but have less than 30 years, you will be WEPed. You also will be WEPed if you have below 30 total qualifying years and you have used UK (or others) years to qualify for US SS.

WEP is applied to your 1st level of benefits (there are 3 levels). The amount for the level changes yearly. For 2012, the 1st level is $767 (ie the first $767 of your pension benefit). Below 20 qualifying years, WEP is 50%. Therefore, if you have less than 20 years and are WEPed in 2012, the amount of WEP will result in a $384 reduction in your SS pension. If your total pension is below $767, 50% of your pension will be deducted. Between 20 and 30 qualifying years, it is gradually reduced to 0% at 30 years.

EDIT:
On 2nd reading, I'm not sure I made this clear. The $767 figure is monthly, not yearly. If your total foreign (nonSS) pensions are below $767 a month, 50% of the total of the monthly foreign pension amount will be deducted.

I have not informed the SSA about the UK SS.  I have not heard of the Windfall Elimination Provision but I will look up.

2. you only get WEP'd once. So if you know you are getting a UK state pension of, say, #1000 a year and know you will get a UK private pension of #10,000 a year, you'd want to start receiving the UK state pension, get WEP'd, then start receiving the UK private pension.

Be careful.

I will assume that phillybx applied for SS in the States. I do not know the methodology for applying in the States, or the questions asked. I do know that when I applied for SS in the UK, I was asked specifically (pointedly) if I would receive any other pensions in the future in addition to those I had declared at the time of applying. I could, and did, truthfully answer no. I assume if the answer had been yes, it would have been noted or calculations would have been treated differently.

Read the fine print on any correspondence you receive from SSA regarding the pension. On mine, it states that if the information given at time of application was incorrect, or incomplete, and if it would result in a lower benefit and is discovered, the SSA will reclaim any over payments made prior, or may deny benefits altogether if it is deemed to have fraudulent intentions.

I think there is a limit to the amount you can be WEPed. So if you have a relatively small US social security, your somewhat protected. For example, if you worked Stateside for 12 years and had 48 quarters, but with 30 qualifying years with U.K NI, (earned). I had read that you can't get less then half? Half of what I'm not sure...

I think there is a limit to the amount you can be WEPed. So if you have a relatively small US social security, your somewhat protected. For example, if you worked Stateside for 12 years and had 48 quarters, but with 30 qualifying years with U.K NI, (earned). I had read that you can't get less then half? Half of what I'm not sure...

And here I always thought 50% was half. 

50% is the maximum amount your first level of benefits can be reduced. If your total UK pension(s) is greater than $767 (using the exchange rate for the day of calculation in 2012), the US SS will be reduced by a maximum of $384/mo. for the first level. If your US SS is over $767, the excess amount of your US SS will be unaffected (the second level amount).

If you have less than 20 years; the total UK pension(s) value in dollars is $800 on the day of calculation in 2012; and your US SS value is $1000 before WEP, the value after WEP would equal $767/.5 ($384, the first level amount) plus $233 (the second level amount), or a total US SS of $617/mo. (and not $1000/mo.).

Interesting, thanks... Waiting until full retirement age is not necessarily a good thing when it come to WEP then. I guess looking at your NI record, those that had made voluntary class 2/3 contributions would be less affected by WEP, then those who had been earned them though employment. I had heard that your qualifying years can be broken down into earned and voluntary/credited when it's retirement time. SSA are only concerned with the earned part?