Taxable Pension Contributions strategy

Hello all,

I'm filing my US taxes, a relatively straightforward scenario as a PAYE employed USC in the UK.

I wish to not elect the US-UK tax treaty regarding my employer and employee pension contributions. Instead I wish to explicitly state the pension contribution amounts in my tax filing - in other words, they will be taxable income. The desire is that these amounts will be tax-free (from the IRS) upon pension withdrawal in the future.

I've read a wonderful explanation of the above from the following thread: https://talk.uk-yankee.com/index.php?topic=98319.msg1300886#msg1300886

I started using H&R Block Expat DIY tax filing service for this year but it automatically elects to file Form 8833 and use the US-UK tax treaty. When I contacted them to request if this can be overridden or if it can be changed post-payment, I was informed that this cannot be done which is a little disappointing. Has anyone had similar intentions with regards to pension contributions and had success with an online tax filing service? Or at least a service which offers the flexibility of a workaround?

On a slightly related note, what are peoples' thoughts on the best place to list the pension contribution amounts? Form 1040 - Schedule 1, 8z (Other Income) appeared most logical to me.

Finally, I filed my first US tax return as a UK resident last year and accrued Foreign Tax Credits carryover. Am I required to state the amount of the FTCs in this years tax return to keep carrying it forward?

I don't know the answer to your questions but my son lists his employers pension contributions to his DC plan each year on his IRS filing and excludes it all with FEIE (form 2555). I expect I'll be long gone when he eventually starts to withdraw from it but if nothing has changed I wouldn't expect him to pay much US tax at all. He rolled his US pension into a Roth IRA plus he will have inherited our Roth IRAs, and his UK OAP and US SS is only taxable in the UK so he will be able to make withdrawals from his UK pension funds at a rate below the IRS single person deduction.

I can't guarantee I've been doing it right, but I've done the same thing, including my and my employer's pension contributions as taxable income, which results in a tax-free cost basis when withdrawing in retirement (you still pay income tax on the growth, but don't have to pay tax again on the contributions). The foreign tax credits due to UK tax on the after-pension pay are still more than enough to wipe out US tax on the pre-pension pay, and probably the UK tax on the 75% taxable part of the pension would eliminate US tax on the pension withdrawals either way - it likely doesn't make much difference.

I didn't differentiate the pension contributions from other Wages, Salaries, Tips, etc. on line 1. I am certainly keeping my own records of what is what, for use in several decades when I withdraw from the pension. I don't see an issue with using Schedule 1 line 8 either, it'll have the same result in the calculations. I did this with TurboTax the last few years - I'm trying TaxAct and OLT this year, but haven't gotten far enough to know for sure if they'll let you do it, although I haven't yet seen any reason to think they won't.

Thanks both for your responses.

I don't see an issue with using Schedule 1 line 8 either, it'll have the same result in the calculations. I did this with TurboTax the last few years - I'm trying TaxAct and OLT this year, but haven't gotten far enough to know for sure if they'll let you do it, although I haven't yet seen any reason to think they won't.

I'd be grateful to hear back from you on your experiences with the different online tax filing services once you've completed your return.

I feel more at ease with including the pension contributions as separate from my salary total so that it's explicitly recorded in each year's tax forms. As you noted, I'll have to maintain a record of the contributions for when it comes time to withdraw. At the minute I keep a spreadsheet of the monthly contributions and have PDF copies of payslips.

I do the same thing for my records - a spreadsheet of every paycheque with all the different deductions, plus a PDF copy of every pay stub. Takes 60 seconds a month, and that's record enough to prove just about anything if I'm ever asked.

I will report back on my experiences with TaxAct and OLT - been asked here and the Bogleheads forums, and also plan to write a post for my own blog. Probably still a couple months away (already filed my extension using Free Fillable Forms).