US taxes on UK employer pension contributions

i'm still trying to get my head around this...

i am currently enrolled in a final pensionable salary scheme in the UK.  i contribute 6 percent of my (pre-tax) earnings and my employer  contributes  23.7 percent. 

from my understanding of the US tax law, i am supposed to pay taxes on the 23.7 percent that my employer contributes each year (though, i believe i don't have to worry about taxes on growth since the pension is based on final salary). 

what i am confused about is exactly HOW i go about paying these taxes.  do i just add the employer contributions to my UK salary and list it as regular income on my 1040?  and then do i use the foreign earned income exclusion to cover all of this?

is there something i am missing?   

You can't claim the exclusion for it, since it doesn't count as earned income. What I did is put it in my total income, but only exclude my actual gross salary on the 2555-EZ.

You can't claim the exclusion for it, since it doesn't count as earned income. What I did is put it in my total income, but only exclude my actual gross salary on the 2555-EZ.

shoot, there goes my $2,000 refund!! that sucks that there's no way to exclude it. thanks for the info! 

You may still be eligible for the Making Work Pay credit, I was!

You may still be eligible for the Making Work Pay credit, I was!

ahh, this is true!  i am not entirely sure how that works in my case, since i worked in the US until August and should have received part of that credit in my paycheck last year...i'll have to read up on that some more...

ok, so upon further calculation, not only am i losing my $2,000 refund, but it now appears i OWE money without being able to exclude the pension contributions.  has anyone ever dealt with a similar situation?  is there anything else i can do to reduce what i owe?  

edited with an update: i have just read this on another tax forum:

"If the source of funding of the pension is a foreign employer pension that physically existed prior to 12 Mar 1962, then of course all the contributions to the pension are 100% US tax-free. So if the value of the pension is £100,000 on the date of the withdrawal, and historical contributions (by the employer, not counting those of the employee) were £20,000, then 1/5th of any pension withdrawal is tax-free basis for IRS purposes per IRS 2009 version of pub 575 page 10. It's the pension that exists pre-1962, not the date s/he began working there."

anyone know if the above statement is accurate?  if so, i would think my employer's pension qualifies since it is a final salary pension and was set up prior to 1962.  if this is correct and i do not owe tax on the employer contributions, do i need to do anything to declare this anywhere on my taxes?? 

and if i am completely wrong about the above...

DrSuperL99: when you completed your taxes, did you declare your pension anywhere on your taxes or is it enough to just report the contributions as income without identifying the source of what you are reporting? 

Well even I was not dreaming of taxes back in 1962...but where did you find this quote?

The law is IRS Code section 402(b)...you might want to start by looking at that.

I am puzzled why you would owe tax though. Including income that is foreign allows you to claim foreign tax credits.  Have you tried revoking the section 911 exclusion?  Have you - also - considered claiming treaty relief for the employer and employee pension contributions?

Well even I was not dreaming of taxes back in 1962...but where did you find this quote?

The law is IRS Code section 402(b)...you might want to start by looking at that.

I am puzzled why you would owe tax though. Including income that is foreign allows you to claim foreign tax credits.  Have you tried revoking the section 911 exclusion?  Have you - also - considered claiming treaty relief for the employer and employee pension contributions?

the quote i pasted came from some us-uk dual tax company "owner" who posted on a forum on linkedin. 

i also found this quote on the IRS site here: http://www.irs.gov/businesses/article/0,,id=187083,00.html

"If you worked abroad, your Cost might include amounts contributed by your employer that were not includible in your gross income. This applies to contributions made either:

before 1963 by your employer for that work,
after 1962 by your employer for that work if you performed the services under a plan that existed on March 12, 1962, or
after 1996 by your employer on your behalf if you were a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person)."

i have no idea what they mean by "Cost" and "not includible in your gross income" though.

i end up owing taxes because it's also combined with money i earned in the US for the first 8 months of the year.  i would have gotten money back, otherwise.  i have no idea what the 911 exclusion is or how i would go about that or how the foreign tax credit system works.  i assumed i couldn't use foreign tax credits on employer contributions since i didn't pay taxes on those contributions?

as far as treaty relief goes, are there any implications in claiming this if i ended up staying in the UK permanently?  i really don't understand anything about that or how i would go about doing it. 

i have been googling for hours and hours and i just can't wrap my head around what i am reading, or i'm not finding what i'm looking for. 

"If you worked abroad, your Cost might include amounts contributed by your employer that were not includible in your gross income. This applies to contributions made either:
before 1963 by your employer for that work,
after 1962 by your employer for that work if you performed the services under a plan that existed on March 12, 1962, or
after 1996 by your employer on your behalf if you were a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person)."
i have no idea what they mean by "Cost" and "not includible in your gross income" though.

This is from the "General Rule", used to calculate the costs of a pension when reducing the amounts received on payments when actually collecting the pension. It has nothing to do with this situation.

This is from the "General Rule", used to calculate the costs of a pension when reducing the amounts received on payments when actually collecting the pension. It has nothing to do with this situation.

my bad! it was under the category 'foreign employer contributions', so i assumed it applied...

Well the good news is that you are way too early to file for 2009 still, so you get several more months to figure out the best answer!

my bad! it was under the category 'foreign employer contributions', so i assumed it applied...

I should thank you for posting the quote. I had an interesting discussion with the IRS on this several months ago. They take the opposing view on the quote, but concede it is debateable. Since I don't care to buy a tax attorney a new Rolls Royce, I accepted the IRS viewpoint.

I just added the total employer contributions for 2009 onto my gross pay, didn't list it separately anywhere. I didn't have to pay anything because I had student loan interest payments and a capital loss on a mutual fund, so I was into negative numbers by the time I got to my exclusion.

Adding the 402(b) income into "pay" is not in accordance with the IRS code - it is typically shown as non-qualifying foreign source income (unlike the mutual fund losses which are US source).

And where would that go on the 1040?