US taxes on UK employer pension contributions

I suggest you ask whoever prepares your US and UK returns as there are differing views.

That would be myself. Self, where do you put your employer contributions on the 1040? Well self, it seems even the IRS can't tell you that, so put it where it seems to make sense.

Unfortunately one needs substantial authority to avoid IRS penalties.  Self belief does not constitute substantial authority.  You may want to file an amended return with Form 8275 disclosing the position explaining why your self belief over-rules the IRS code.

guya, it would really be helpful if when you post things you were in any way clear or explanatory, rather than just saying 'that's wrong due to code xyz but nobody really knows the right answer' and other such cryptic and unhelpful replies. You say it shouldn't go in the gross income total, but then you don't actually give any idea of where one should put it, how it should be included, or where one can find this answer. It's all very well to say ask your tax preparer, but I certainly can't afford one, as when I once tried to find one, I was quoted a price of several hundred pounds. My answer was a flippant one to reflect that, not a statement of 'self-belief' meant to be taken seriously, and I will not be filing an amended return with Form 8275 explaining why I made a flippant remark in a forum. If you're able to provide an actual answer to the question I would really appreciate it, as I'm sure would lilybelle.

i have spent countless nights researching this information (which i did need to know by today because if i owe money, it is due today) and this exact situation is rarely mentioned outside of this forum.  i still am unclear on exactly how my particular pension even applies to the 402(b) code that was referenced here. i have read through the documents on the IRS website and frankly, i don't think they answer any of the questions i have about my situation.  i've spoken to other americans where i work who are in the same pension scheme and the ones who have hired accountants who specialize in US and UK taxes all say that they were told they did not have to worry about their employer contributions towards our pension.  it's really hard to determine who has the correct answer.  i'm not sure how much it would cost to hire someone, but it's something i'm willing to consider at this point if i can find the explanations that i need, but i wouldn't even know where to begin to find someone who has the answer to this as i can rarely find mention to this specific question anywhere on the internet when i search for this.  guya, i don't know your background, but i assume you are in business here. if your answers are implying that we should be hiring you for this information, could you provide us with information on how we can hire you, what your rates are, etc?  or are there other people you would recommend we hire?  given how many of my coworkers have received advice completely opposite of what you are saying, i don't know how to determine whether the person i am hiring will have the correct information.  

i am also wondering what other people on the message board are doing about this--surely DrSuperL99 and myself are not the only two people here who have pensions provided by their employer???

Here is the deal.

Guya is a tax professional.  Sometimes it is really difficult to help steer people in the right direction (for free) and also balance that with the fact that people pay you good money for that expertise.  Not that you have done this at all, but it can also be somewhat irritating when people as the same questions or just don't get it.  People rarely realise when they are out of their depths and then think that the tax professional should essentially prepare the return via an internet forum. It is really difficult to balance being friendly/helpful and feeling taking advantage of.  Now granted, I cannot speak for Guya, but I certainly understand these troubles.

Onto your tax question...

You can take the position that you are in a defined benefit pension scheme.  By doing that, you can exclude the employer contributions -- UP TO A LIMIT -- under the double tax treaty (see below).  The limits are here: http://www.irs.gov/newsroom/article/0,,id=187833,00.html.  If you exceed the limit, then you are subject to tax - though you can treat it as foreign source and take a tax credit against it.  You cannot use FEIE, which was explained above - the income is foreign source but not foreign earned.

The other position is that you are in a non-qualified plan or a foreign trust and you would not be able to claim the treaty.  This is where Guya is coming from.  A summary of the position was reasonably explained here: http://www.expatattorneycpa.com/id70.html.  Please note I have no affiliation with that link and only using it for a more layman's explanations.

The final thing is, Guya cannot advise you which way to go, when there is an arguable position.  THis is why he is generally cautious when giving advice.  

Here is the DTA language:

This establishes that the contributions can be ignored in comp:

5. a) Where a citizen of the United States who is a resident of the United Kingdom
exercises an employment in the United Kingdom the income from which is taxable in
the United Kingdom and is borne by an employer who is a resident of the United
Kingdom or by a permanent establishment situated in the United Kingdom, and the
individual is a member or beneficiary of, or participant in, a pension scheme established
in the United Kingdom,
(i) contributions paid by or on behalf of that individual to the pension
scheme during the period that he exercises the employment in the United
Kingdom, and that are attributable to the employment, shall be deductible (or
excludable) in computing his taxable income in the United States; and
(ii) any benefits accrued under the pension scheme, or contributions
made to the pension scheme by or on behalf of the individual’s employer, during
that period, and that are attributable to the employment, shall not be treated as
part of the employee’s taxable income in computing his taxable income in the
United States.

This establishes you are held to the limits that I mentioned above:

b) The reliefs available under this paragraph shall not exceed the reliefs that
would be allowed by the United States to its residents for contributions to, or benefits
accrued under, a generally corresponding pension scheme established in the United
States.

Many people find the treaty confusing but you can read the text, with the technical explanation and exchange of notes and get a better idea of what they are trying to say.

http://www.irs.gov/businesses/international/article/0,,id=169552,00.html

Thank you Sara, but it still doesn't answer the question of where to put it on the 1040 if not under the wages line. Even a wild guess would be useful.

Thank you Sara, but it still doesn't answer the question of where to put it on the 1040 if not under the wages line. Even a wild guess would be useful.

Sorry, I was assuming everyone was planning on excluding!

Again, assuming this is just a pension (foreign trusts are a different matter entirely), you can put it on line 7, but some people are uncomfortable with that because there is usually no breakout if you are self preparing.  Alternatively you can put on line 21 as other income. 

Again, guya is being cautious because of the trust view of thinking.

Here is the deal.

A bit of a rant here, so if you’re not interested in taxes, look away now.

We should thank the civically minded professional individuals who post on this site for their expertise, time, and patience. I’m sure there are, and have been in the past, more than one. I understand their difficult position. If one reads the responses closely, the “clues” are very much there. In my opinion, that’s what makes this site outstanding. A quick glance at some tax forums on the web (and a certain Swiss site is a prime example) reveals advice from some individuals that wouldn’t be tolerated here.

I have a great deal of empathy for DrS, lilybelle, and the many other perplexed individuals, including myself, who post here. We all receive the “Forms & Instructions for overseas filers”. It alone is riddled with omissions and inconsistencies, and it’s no wonder tax professionals can’t always agree on more complex issues. I’m sure they deserve their rewards. I also know for a fact that solid professional advice comes with a higher price tag than “several hundred Pounds”.

And so for my rant:
As a U.S. “person” abroad, we are required to submit to an overly complex, antiquated, provincial, and for us, burdensome tax regime (Note: My Opinion! And I do not agree with the "Tea Party"). I file U.K. returns. I file French returns. I can tell the difference between straight forward reporting for the “average” individual, and grossly complicated reporting. We allow this because we don’t, or feel we can’t, affect the status quo because we have no voice from abroad. With proposed legislation before Congress, things may become more difficult for overseas ‘for-in-eer tax dodgin’ Americans (the proposed abolition of Form 2555 or the already passed reporting requirements in addition to FBARs for example).

When feeling that confusion about what to do regards reporting an apparent straight forward situation, please, please, consider writing your Congressman/woman or your Senator. Consider also contributing even a few quid to ACA or AARO. Tax professionals should be allowed to concentrate on the clients that require advice due to complex situations, and we shouldn’t be required to seek paid assistance for straight forward reporting.

End of rant.       

You can't hear me applauding to your rant, but I really am...I always tell folks that what I admire about the US system is that it is democratic.  If YOU don't like the 16th amendment, the Bank Secrecy Act, the HIRE Act, Healthcare taxes or anything else the government does then YOU can change it through your vote and your lobbying.  This may seem a crazy statement but it is at least a possibility.

Yes the tax system itself is crazy too - that is why there are so many, many recipes not just for chicken soup but also for what is supposed to taste like a tax return.

Tax is not black and white but a very grey mess - the risks are high though that the chicken fat will splash and get all over you as you make the soup, so take special loving care to avoid the tax authorities getting back at you over the flavour of your very own soup.

Good tax advice is out there - and no I don't self-promote - I always say get someone qualified in both countries - perhaps just in the first year or when something complicated happens. She or he will be a specialist who does every day what is complicated to many of the rest of us.   Seek out good US tax people over here and some - just like Sara - will be around to help.   

Thank you, Sara.

I am still interested in finding someone to hire, if anyone has recommendations.  The only people I've been recommended so far don't seem to know about the employer contributions issue. 

"... YOU can change it through your vote and your lobbying ..."

Unfortunately we cannot. There is such xenophobia about in the US, such assumption that any foreign transaction or holding at all is presumptively for purposes of tax evasion, or at least unpatriotic. Overseas Americans, except for those working for multinational companies, major nonprofits and missionary organisations, have no power base in the US.

The draconian penalties applied for FBAR, 3520 and 5471 nonfiling are frightening. I have known so many "accidental Americans" and so many poor and lower-middle class Americans abroad who could not, under any foreseeable set of circumstances, afford professional tax help and who are made, unknown to themselves, into tax felons.

Why am I not surprised when I meet Americans dual nationals abroad who have not renewed their US passport, never visit the US, and have no US assets. Except for Canada (where there is a workable mutual tax collection treaty in force, not applicable however to Canadian citizens or Canadian-American dual nationals) there is no enforcement.

The big worry is this: as OECD countries move towards equating tax evasion with money laundering (an extraditable offence), those who cannot stay beneath the radar will be at risk.

Also there is the issue of transferee liability where US residents inherit assets from nonfilers.

I am not condoning nonfiling: I am rather stating the obvious -- that the increased complexity of US tax law, the increased burden put upon even those of modest income and assets abroad, have made compiance virtually impossible for many.

It was only thanks to last-minute lobbying that the 911 exemption was included in the Health Insurance law. Otherwise millions of Americans abroad would have been penalised for not buying insurance that they could not in any case use, even though they were in most cases fully insured abroad.

But nobody is going to lobby for the 80-odd percent (itself only a guess) of Americans abroad who never file and who have no concept of what their US tax liabilities are. The GAO researched nonfiling years ago, and even then had to admit the problem was unquantifiable. http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-98-106