Soc Sec and US / UK taxes.

My wife and I are getting close to getting our Social Security and are starting to have questions about it as taxable on the US side. We have not had any income in the US for years and are WAY below the 100K earnings to pay any taxes in the US although we file our US taxes every year and owe nothing.

Will this all change when we start getting SS? As a reference, we will still not be anywhere near the 100k income to have to pay US taxes if that were UK income added to our little retail jobs here. So will we still pay no US tax??

Thanks so much!!

NWKH

My wife and I are getting close to getting our Social Security and are starting to have questions about it as taxable on the US side. We have not had any income in the US for years and are WAY below the 100K earnings to pay any taxes in the US although we file our US taxes every year and owe nothing.

Will this all change when we start getting SS? As a reference, we will still not be anywhere near the 100k income to have to pay US taxes if that were UK income added to our little retail jobs here. So will we still pay no US tax??

Thanks so much!!

NWKH

If you are a US citizen and you live in the UK, you would pay any taxes due on your SS payments only to the HMRC per the provisions of the UK/USA tax treaty.  Any income you have from UK sources, if you are a US citizen, is also taxable in the USA. (Subject to any provisions of the tax treaty that allow you to use foreign credits, etc., to negate having anything due to the IRS.)



ARTICLE 17
Pensions, Social Security, Annuities, Alimony, and Child Support
1. a) Pensions and other similar remuneration beneficially owned by a resident of a
Contracting State shall be taxable only in that State.
b) Notwithstanding sub-paragraph a) of this paragraph, the amount of any such
pension or remuneration paid from a pension scheme established in the other Contracting State
that would be exempt from taxation in that other State if the beneficial owner were a resident
thereof shall be exempt from taxation in the first-mentioned State.
2. Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment
derived from a pension scheme established in a Contracting State and beneficially owned by a
resident of the other Contracting State shall be taxable only in the first-mentioned State.
3.Notwithstanding the provisions of paragraph 1 of this Article, payments made by a
Contracting State under the provisions of the social security or similar legislation of that State
to a resident of the other Contracting State shall be taxable only in that other State.
4. Any annuity derived and beneficially owned by an individual (“the annuitant”) who
is a resident of a Contracting State shall be taxable only in that State. The term “annuity” as
used in this paragraph means a stated sum paid periodically at stated times during the life of the
annuitant, or during a specified or ascertainable period of time, under an obligation to make the
payments in return for adequate and full consideration (other than in return for services
rendered).
5. Periodic payments, made pursuant to a written separation agreement or a decree of
divorce, separate maintenance, or compulsory support, including payments for the support of a
child, paid by a resident of a Contracting State to a resident of the other Contracting State, shall
be exempt from tax in both Contracting States, except that, if the payer is entitled to relief from
tax for such payments in the first-mentioned State, such payments shall be taxable only in the
other State.

https://www.irs.gov/businesses/international-businesses/united-kingdom-uk-tax-treaty-documents

I agree with Nan.

My wife has been getting SS in the UK for a couple of years now. (We are both US/UKC)

When we file our US tax return then SS is recorded on the usual line on the 1040, lines a and b and the the taxable amount b is shown as zero.

My wife and I are getting close to getting our Social Security and are starting to have questions about it as taxable on the US side. We have not had any income in the US for years and are WAY below the 100K earnings to pay any taxes in the US although we file our US taxes every year and owe nothing.

Will this all change when we start getting SS? As a reference, we will still not be anywhere near the 100k income to have to pay US taxes if that were UK income added to our little retail jobs here. So will we still pay no US tax??

Thanks so much!!

NWKH

US social security pensions are fully subject to UK tax. If you and your spouse are not already registered for self-assessment, you will both find yourselves needing to register and filing annual tax returns with HMRC. Payments of US social security pensions to UK residents paying UK tax on the arising basis are exempt from US tax.

Wow..... so glad i asked!!! So I also plan to set up an annuity for us in the USA. The way I read the above the same would apply to that income. Report and pay tax to HMRC.??

How I understand this.. correct me if I am wrong here. We get our SS and annuity income from the USA tax-free on the USA side of the pond. But we must start doing a Self-assessment for HMRC each year on the UK side to pay taxes on that income. And pay taxes on any other income we might have on UK side of the pond. So in theory we will not owe taxes in the USA as long as we stay under the 100K limit each year for income and file our taxes for the USA each year.  Do I have this right?

Thanks

Wow..... so glad i asked!!! So I also plan to set up an annuity for us in the USA. The way I read the above the same would apply to that income. Report and pay tax to HMRC.??

How I understand this.. correct me if I am wrong here. We get our SS and annuity income from the USA tax-free on the USA side of the pond. But we must start doing a Self-assessment for HMRC each year on the UK side to pay taxes on that income. And pay taxes on any other income we might have on UK side of the pond. So in theory we will not owe taxes in the USA as long as we stay under the 100K limit each year for income and file our taxes for the USA each year.  Do I have this right?

Thanks

I believe your US annuity income will be taxable in both the USA and UK as will any distributions from retirement accounts such as IRAs and 401ks, although your SS will only be taxable in the UK.  Not sure where you get that the first $100k income will be tax free in the USA. If you are referring to the Foreign Earned Income Exemption (FEIE) then that will be $126,500 in 2024 but that only applies to earned income, not foreign interest, foreign pensions etc.

You will file HMRC self assessments (self and wife must both file if they have income) and the taxes paid can then be then claimed as foreign tax credits on your IRS tax return.

Wow..... so glad i asked!!! So I also plan to set up an annuity for us in the USA. The way I read the above the same would apply to that income. Report and pay tax to HMRC.??

How I understand this.. correct me if I am wrong here. We get our SS and annuity income from the USA tax-free on the USA side of the pond. But we must start doing a Self-assessment for HMRC each year on the UK side to pay taxes on that income. And pay taxes on any other income we might have on UK side of the pond. So in theory we will not owe taxes in the USA as long as we stay under the 100K limit each year for income and file our taxes for the USA each year.  Do I have this right?

Thanks

I don't know what is meant by annuity. Is this is a US qualified retirement plan or - alternatively - an insurance product?

Durhamlad,

What!!!! Taxed in both places!!!

OK. This is getting complicated. Yes, guess I was referring to the FEIE. I foolishly thought that exemption applied to ALL income I didn't know this about 401 and Annuity income being taxed on BOTH sides. Do both sides keep it or.....

I'm a little lost. How I understand this... please correct me if I have this wrong. We pay the taxes on the Annuity and 401K in the USA. We self-assess in the UK and pay the taxes on the annuity and 401K in the UK. Then on our US tax return, we receive a "foreign tax credit" and get back what we paid in the USA. (or is it the UK?) Right? No? Surly we can't have to pay taxes on this income in both places!!!!

At what rate is this income taxed?

Guya-

An annuity is a long-term investment with an insurance company to provide regular income. It usually comes from your pension pot and is made early in retirement to guarantee a steady stream on income.

Durhamlad,

What!!!! Taxed in both places!!!

OK. This is getting complicated. Yes, guess I was referring to the FEIE. I foolishly thought that exemption applied to ALL income I didn't know this about 401 and Annuity income being taxed on BOTH sides. Do both sides keep it or.....

I'm a little lost. How I understand this... please correct me if I have this wrong. We pay the taxes on the Annuity and 401K in the USA. We self-assess in the UK and pay the taxes on the annuity and 401K in the UK. Then on our US tax return, we receive a "foreign tax credit" and get back what we paid in the USA. (or is it the UK?) Right? No? Surly we can't have to pay taxes on this income in both places!!!!

At what rate is this income taxed?

Guya-

An annuity is a long-term investment with an insurance company to provide regular income. It usually comes from your pension pot and is made early in retirement to guarantee a steady stream on income.

The rate at which the income is taxed depends on your personal circumstances in each country. Your 401k distributions and pension annuity will be taxed in both countries and you apply foreign tax credits so that in the end you pay the higher of the two taxes. If the UK taxes you pay on that income is higher than the US taxes then it should reduce the US taxes to zero.

Guya is the pro and can certainly explain it better than I can.

Durhamlad,

What!!!! Taxed in both places!!!

OK. This is getting complicated. Yes, guess I was referring to the FEIE. I foolishly thought that exemption applied to ALL income I didn't know this about 401 and Annuity income being taxed on BOTH sides. Do both sides keep it or.....

I'm a little lost. How I understand this... please correct me if I have this wrong. We pay the taxes on the Annuity and 401K in the USA. We self-assess in the UK and pay the taxes on the annuity and 401K in the UK. Then on our US tax return, we receive a "foreign tax credit" and get back what we paid in the USA. (or is it the UK?) Right? No? Surly we can't have to pay taxes on this income in both places!!!!

At what rate is this income taxed?

Guya-

An annuity is a long-term investment with an insurance company to provide regular income. It usually comes from your pension pot and is made early in retirement to guarantee a steady stream on income.

UK taxation of offshore insurance products - which includes what are sold in the US as "Annuities" is complex - HMRCs Helpsheet may assist: https://www.gov.uk/government/publications/gains-on-uk-life-insurance-policies-hs320-self-assessment-helpsheet/hs320-gains-on-uk-life-insurance-policies-2021