Where to report employer pension contributions

So you think that gains derived in a pension are not income derived with respect to a pension?

Well gains in a DC pension are dividends and capital gains, but those are taxed as income along with the principal when you take the money out. Does the IRS exemption to 8833 filing cover internal gains of value in the pension? Does it cover employer contributions? It's not obvious to me that they are covered. Make your own decision.


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Well gains in a DC pension are dividends and capital gains, but those are taxed as income along with the principal when you take the money out. Does the IRS exemption to 8833 filing cover internal gains of value in the pension? Does it cover employer contributions? It's not obvious to me that they are covered. Make your own decision.


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Income within pensions is decidedly income for NIIT purposes as NIIT is not covered in the tax treaty.  Everything else is conjecture until we have a US Supreme Court decision on what the hell the US/UK treaty actually means...

Income within pensions is decidedly income for NIIT purposes as NIIT is not covered in the tax treaty.  Everything else is conjecture until we have a US Supreme Court decision on what the hell the US/UK treaty actually means...

I think Nun was suggesting that the exemption from filing the 8833 might not apply because the character of the income in the pension might not be considered "pension" income. Your comment seems to be unrelated to whether an 8833 should be filed or not.  Instead, your comment seems to be a question about whether the treaty would apply, even if an 8833 were filed.

Well gains in a DC pension are dividends and capital gains, but those are taxed as income along with the principal when you take the money out. Does the IRS exemption to 8833 filing cover internal gains of value in the pension? Does it cover employer contributions? It's not obvious to me that they are covered. Make your own decision.

If you think the income is considered gains or dividends, I don't think you can rely on the treaty to exclude the income.  So filing the 8833 to exclude gains or dividends would not be of any use.

If you think the income is considered gains or dividends, I don't think you can rely on the treaty to exclude the income.  So filing the 8833 to exclude gains or dividends would not be of any use.

I think you are probably ok in taking the course of exemption from 8833 filing that you propose because when I emailed the IRS UK Embassy office about this a while ago they said that an 8833 was seldom filed for UK pension contributions and gains and didn't seem much concerned about it. However, the IRS is a lot more particular now about foreign assets and the consequences of having gains in a PFIC fund held in trust (probably most DC pension funds) if the treaty exemption is not applied would be dire. Therefore, I think it prudent to CYA and explicitly claim the treaty exemption on the growth in the funds and even the contributions. However, if you can use FEIE and FTC to deal with the US tax on the contributions that might be a better long term approach.

So discly, what would you personally do in the following situations?

1) Employer approved pension where employer matches employee contributions to recognized group pension scheme.
   - where (if anywhere) do you claim/state the employer contributions made? As income? Not at all? On an 8833?
 
2) Personal pension (where employer makes no contributions and had set up no pension for the employer, pre-2015):
   - is this reported anywhere in filing returns? Gains made during the year on the fund, are they necessary to report?


Both of the above scenarios assume that the filer is not trying to re-allocate any of their own personal contributions to the pension, and assumes this as part of gross salary.

Thanks,
J

So discly, what would you personally do in the following situations?

1) Employer approved pension where employer matches employee contributions to recognized group pension scheme.
   - where (if anywhere) do you claim/state the employer contributions made? As income? Not at all? On an 8833?
 
2) Personal pension (where employer makes no contributions and had set up no pension for the employer, pre-2015):
   - is this reported anywhere in filing returns? Gains made during the year on the fund, are they necessary to report?


Both of the above scenarios assume that the filer is not trying to re-allocate any of their own personal contributions to the pension, and assumes this as part of gross salary.

Thanks,
J

Are 3520s and 3520-As being filed as well for the personal pension?

They were not planning to be. I do not really understand what a trust is. I also do not understand how/why the rules should be different for my wife who did not have any employer pension scheme so she had to go to her bank and set up a defined and approved pension plan with them that she contributed into.

It falls under UK tax law definitions as a pension plan so I do not see why this cannot be covered by the US-UK tax treaty without onerous filing of a trust form that uses terminology that does not really apply to a pension?

The US/UK treaty has no impact on and makes no reference at all to information returns. There is no element of double taxation because an information return does not generate a tax liability. Consequently information returns are unaffected by the tax treaty.

Given the penalties for failure to file or for filing incomplete FBARs, 3520s, 3520-As, 1116s, 8621, FinCEN 114 & other information returns, many people err on the cautious side and file every possible information return.  You will want to know in your specific circumstances if any UK pension is or is not a foreign grantor trust.  Any pension provider or financial adviser involved may be able to assist. If the subject is still unclear you may want to obtain a US legal opinion on what to disclose or not disclose.

Thanks guya and nun, I understand these points fully.

I guess the cynic in me is reluctant to spend any money on a tax professional as all the evidence points to this being a complete lottery as to what your tax advisor will say. Even IRS agents commonly will state different things depending on which one you talk to and it is not clear at all.

Further, the language used in a 3520 and also even more pertinently the 3520A is very complex and hard to make any clear application to a simple approved pension scheme. This is an added hardship IMHO that the US/UK tax treaty actually speaks to and IMHO is undue. Whether that is defendable or not, I do not know.

So I could spend £100's for a tax advisor to tell me I don't need the 3520. Or I could spend £100's for one to tell me I do. And then £100's more to help me fill it out.... Who is right? I have read opposing information, not just on here (where I cannot verify if someone is lay person or CTA) but on websites of actual CTA firms/individuals! Like I said, it seems a lottery.

Which is why a large part of me seems to think taking the middle ground is perhaps the best option. In other words, I report it on FBAR as a foreign pension of my wife's, and I also fill out 8833 which I personally do not see as simply stating a treaty position but I also see as an information return, as on that form I will state the value at the start of the year, the end of the year, and the contributions made.

My problem and main issue with the 3520 is how I have read a number of stories where filing this can put you into a higher risk category, and if you get this wrong as well you are then higher risk marked and people have also been automatically pursued by a computer in the IRS, with no one to contact about it and no clear appeal without a lawyer, for excessive penalties. Granted this was related to a gift/inheritance part of the form, but it highlights my concern with filing this form, especially when no one can seem to agree with its necessity given the US-UK tax treaty.

J

The US/UK treaty has no impact on and makes no reference at all to information returns. There is no element of double taxation because an information return does not generate a tax liability. Consequently information returns are unaffected by the tax treaty.

Given the penalties for failure to file or for filing incomplete FBARs, 3520s, 3520-As, 1116s, 8621, FinCEN 114 & other information returns, many people err on the cautious side and file every possible information return.  You will want to know in your specific circumstances if any UK pension is or is not a foreign grantor trust.  Any pension provider or financial adviser involved may be able to assist. If the subject is still unclear you may want to obtain a US legal opinion on what to disclose or not disclose.

Unfortunately, I agree with Guya that a 3520 and a 3520-A are probably required for the personal pension.

However, I don't like to over-exaggerate the risks. Guya talks about penalties for failure to file various forms. He lists the FBAR twice (once as FinCEN 114).  I am not aware of any monetary penalty for failing to file 1116 or 8621.

That leaves the FBAR, 3520, and 3520-A.  I would be surprised to hear of a circumstance where the I.R.S. has asserted or imposed a 3520 or 3520-A penalty for failing to file these forms for a UK personal pension.

The FBAR is important to file.

read 4 pages of the discussion and became more confused how to report employer contributions.