“Foreign Earned Income Exclusion” On UK Pension Income..?

I’m just wondering if anyone can answer a quick question on “Foreign Earned Income Exclusion”

My wife has just started getting her US Social Security Benefit.  This now raises our total income counting my UK state Pension and UK Private pension above  the US tax thresholds, even after paying Taxes in the UK.

These pensions are our only source of income, and up until now we’ve had no US TAX to pay by claiming Tax Credits.

I was hoping that by using  “Foreign Earned Income Exclusion”, at least on MY UK pensions, I would be able to keep our US TAX liability at zero.

BUT,  I’m beginning to wonder if my UK pensions are considered to be “Earned Income”  by the US, and if not does this mean I can’t claim Foreign Earned Income Exclusion.

If this is the case it means I’m being taxed twice on my pensions..!!  So what of the No Double Taxation clause between the UK and the US..?

The FEIE (2555) is only for for earned income of which pensions are not. File 1116 to prevent double taxation.

Your wife's social security pension is completely exempt from US tax. She will nonetheless report it to HMRC on her UK self-assessment return each year. Double taxation is ameliorated by the US giving credit for UK tax paid on doubly taxed income, it is unusual for a US citizen in this situation to owe tax to the US.

When we file our IRS return, SS income is reported on line 6. 6a shows the full amount and 6b shows zero since SS is only taxed in the UK for a resident in the UK as per the treaty.

Hi Durhamlad

When you refer to line 6A and 6B on you IRS return, I assume you mean on the 1040 form.

So we can enter my Wife’s US Social Security Benefit amount in 6A, and enter zero in 6B..?

By the Same Token, can I enter my two UK Pensions (Total) amount in 5A and zero in 5B..?

Hi Durhamlad

When you refer to line 6A and 6B on you IRS return, I assume you mean on the 1040 form.

So we can enter my Wife’s US Social Security Benefit amount in 6A, and enter zero in 6B..?

By the Same Token, can I enter my two UK Pensions (Total) amount in 5A and zero in 5B..?

Yes, zero for line 6B.

No, the UK private pensions are taxable by the IRS so the taxable amount should go in 5B. You would claim back any UK taxes paid using the foreign tax credit, form 1116.

I actually create substitute 1099-Rs for my UK private pensions, form 4852,  which also provides a place to explain what they are. I’ve also heard that you can put the amounts as “other income”  on line 8, also with an explanation. I don’t know which is strictly correct but the result is the same.

Form 4852 would have been helpful when I didn’t get a 1099 a few years back. I was able to work out the figures ok without it though. Looking at the form you have to call the IRS first, once all attempts to contact the payer to send on a W2/1099 have been exhausted and late February has been reached.

So just to clear

If I total my UK old age pension and add to it my gross private pension I will have a UK GROSS PENSION INCOME Total.   

Once I deduct the UK TAXES on my pensions, I will then also have a UK NET PENSION INCOME Total.

So… on the IRS 1040 form, line 5a I enter the UK GROSS PENSION INCOME and on Line 5b I enter the UK NET PENSION INCOME, showing on form 1116 the amount of UK TAXES already paid.

OR do I enter Nothing on form 1040 line 5a and enter my TOTAL GROSS UK PENSIONS INOME (before UK Tax), on Line 5b..? Again showing the UK TAXES already paid on Form 1116..?

And 3 forms need submitting… 1040,  1116,  4852..?

So just to clear

If I total my UK old age pension and add to it my gross private pension I will have a UK GROSS PENSION INCOME Total.   

Once I deduct the UK TAXES on my pensions, I will then also have a UK NET PENSION INCOME Total.

So… on the IRS 1040 form, line 5a I enter the UK GROSS PENSION INCOME and on Line 5b I enter the UK NET PESION INCOME, showing on form 1116 the amount of UK TAXES already paid.

And 3 forms need submitting… 1040,  1116,  4852..?

That doesn't sound right to me. Line 5b is the taxable portion of the pensions and that should be the same as the gross amount, not after you have paid UK taxes. The 1116 should be filed to reclaim the UK tax paid on the gross. Almost certainly the UK tax will be higher so the US tax will be reduced to zero.

So I leave form 1040  line 5a blank and enter the UK TOTAL Gross Pension Income on line 5b.  .. OK

What was concerning me was that even after UK Taxes have been deducted,  IF my wife’s Social Security Benefit is added to my NET income we are still over the Married Filling Jointly Threshold in the US making us liable to more Taxes in the US, and therefore I would be getting Taxed twice on my same UK pensions income…

BUT… If as you said above I declare the Taxable amount of my wife’s Social Security Income as ‘ZERO’ on line 6b of form 1040,  Then we fall below the Taxable Threshold…

So I leave form 1040  line 5a blank and enter the UK TOTAL Gross Pension Income on line 5b.  .. OK

What was concerning me was that even after UK Taxes have been deducted,  IF my wife’s Social Security Benefit is added to my NET income we are still over the Married Filling Jointly Threshold in the US making us liable to more Taxes in the US, and therefore I would be getting Taxed twice on my same UK pensions income…

BUT… If as you said above I declare the Taxable amount of my wife’s Social Security Income as ‘ZERO’ on line 6b of form 1040,  Then we fall below the Taxable Threshold…

Exactly. The zero taxable of SS on line 6b does not increase the taxable income by a single penny.

To be strictly correct you put the gross income of your UK pensions in line 5a AND line 5b. Saves a possible flag being raised when the IRS system processes it. Line 5a is the total amount and line 5b is the taxable amount. Some pension annuities in the USA have a non taxable portion.

Where on IRS Tax form do we claim back taxes overpaid on a previous year..?

Before we submitted our IRS Tax returns for 2021, my wife had had a period of unemployment, before stopping work altogether.

The unemployment benefit paid to my wife was pre taxed, (at about 10% I think), in anticipation of my wife continuing working and so earning more.  In 2021, my wife didn’t earn any other income and so her tax liability for 2021 was zero, and the tax already taken was an overpayment.

When we submitted our tax return for 2021, we entered the amount of refund she was entitled to on lines 25 and 34 of the 1040 form and mailed the form(s) to the IRS in the US via recorded delivery from the UK, to be sure we knew when they received it.  Many months later we got confirmation they had received our documents.

It’s now over a year and, here we are again, preparing to submit yet another tax form for 2022 and we still have had no refund for 2021, questions, or feedback from the IRS.

Have we missed something in our claim for the refund..

Where do we submit a refund if not on the 1040 form lines listed above..?

And/Or should we have included yet another form with the claim..?

It’s now over a year and, here we are again, preparing to submit yet another tax form for 2022 and we still have had no refund for 2021, questions, or feedback from the IRS.

You could try checking the status of your refund here:
https://www.irs.gov/refunds

Never used it myself, but it looks simple enough.

Thanks Alan, but I’ve tried this and other similar online searches only to be told they cannot give me any information.

My real question now is…

Can I re-apply for the same tax refund again on my 2022 tax return,  that I originally ‘tried’ to claim  back on my  2021 Tax Return, (and didn’t receive),  and if so, How on earth do I do that..!!??

The Hole just digs deeper, and I’m still in it..!!