How to report UK workplace pension?

I am working in a UK higher education establishment.

I have a workplace pension (University Superannuation Scheme) (13 months contributions so far).

I have found out that 22.5% of my salary is entered into the scheme, 6.5% is explicitly taken from my gross salary and reported on my payslips, with 16% contributed by the employer silently (I have no paperwork regarding this).

I have no access to any financial reports regarding the pension. I do not have an account number, or anyway to see the balance of the account. After my first full (UK tax) year I should get a statement of benefits obtained, but this will be in the form of "years accrued" and will not have any monetary amounts.

How should this be reported to the IRS?
Do I need to manually add the 16% employer to my declared income?

Do I have to include it on the FBAR? If so what information do I need? Someone in the pension department of the university told me there is no way I can get a balance or account number so I am not sure what to do.

For the current years I am so far below the excemption limit that it doesn't matter if it is recognised as pension or not by the IRS - it is fine to just have the full gross amount - I am just trying to make sure I am doing things correctly. But for the future (and perhaps it would be useful to others) what is the procedure for labelling part of the income as pension contributions under the US/UK tax treaty?

Thanks for any help, sorry for all the questions...

Assuming your UK workplace pension is protected by the US-UK Tax Treaty, contributions made by your employer are made before tax is deducted (for both UK and US purposes) so do not need to be reported. You pay the tax when you eventually take the money out.

Not sure how you account for your own contributions, but one option might be Form 8833 - http://www.irs.gov/pub/irs-pdf/f8833.pdf.

Assuming your UK workplace pension is protected by the US-UK Tax Treaty, contributions made by your employer are made before tax is deducted (for both UK and US purposes) so do not need to be reported. You pay the tax when you eventually take the money out.

So it is OK for me to report the total gross income reported on my Payslips? (ignoring the 16% employer contribution). For my own contributions I really don't mind because without doing anything to deduct them I am still very safely within the foreign exclusion limit so I am just trying to do the simplest correct approach.

Do I need to put anything on the FBAR for the pension?

USS is a define benefit pension plan so you won't have any balance or funds as such. This is good as you don't have to worry about FBAR for it. However, you should include it on FATCA and if you don't know the value of it just write that on the form and say it's a defined benefit pension plan. Of course that begs the question of how do you know if you are over the FATCA reporting threshold...........

Assuming USS is covered under the treaty you will be able to exclude yours and you employer's contributions from your current US taxes up to the IRS limits, that's around $17k. Anything over that has to be declared as income and current taxes paid. However, if you use foreign tax credits you can use any that are excess to "pay" that tax bill giving you a US tax free basis in the pension. Then when you come to take income you will only pay US tax on any gains, not your principal payments.

I think one thing I am sure of in this business is that I am under the FACTA threshold

Assuming USS is covered under the treaty you will be able to exclude yours and you employer's contributions from your current US taxes up to the IRS limits, that's around $17k. Anything over that has to be declared as income and current taxes paid. However, if you use foreign tax credits you can use any that are excess to "pay" that tax bill giving you a US tax free basis in the pension. Then when you come to take income you will only pay US tax on any gains, not your principal payments.

Thanks very much. Can you briefly say what this involved in terms of forms? Do I need to use a special form to declare my use of the treaty. Where and how to report the amounts? I will be well under the $17k as well I think and I would rather do the foreign income exclusion than tax credits to keep things simple.

Thanks very much. Can you briefly say what this involved in terms of forms? Do I need to use a special form to declare my use of the treaty. Where and how to report the amounts? I will be well under the $17k as well I think and I would rather do the foreign income exclusion than tax credits to keep things simple.

You'd just have to file an 8833. Make sure that you keep track of the contributions made to USS by you and your employer so that you don't exceed IRS amounts.

You should probably get some professional advice about how to file the 8833, unless someone wants to weigh in........look at Article 18 p2 of the treaty and also the Article 1 p5(b)

OK thanks. I will look into the 8833. I will also get advice but trying to do as much as I can myself first.

I just find it odd that I have nothing in terms of paperwork for the employers contribution - just someone told me over the phone it was 16% and I have to calculate it myself as 16% of my gross pay.

OK thanks. I will look into the 8833. I will also get advice but trying to do as much as I can myself first.

I just find it odd that I have nothing in terms of paperwork for the employers contribution - just someone told me over the phone it was 16% and I have to calculate it myself as 16% of my gross pay.

The university makes the 16% contribution to help fund your pension. As it's a defined benefit pension you'll never see anything about those contributions for UK tax purposes and there are no funds as such.

There was a time when the university would have fully funded your pension, your contribution would have been 0%...the good old days of the non-contributary pension plan.
My US employer also has a defined benefit plan, but the employer's contribution is 5% and the employees is 11%.....and that's considered pretty good in the US.

The 16% is mythical because the USS is significantly in deficit. The actual cost will be whatever your employers' actuaries tell them will be required to meet the benefits you are promised.

You are required under code section 402(b) to enter the vested accrued benefit of the plan each year. This is a legal obligation and is not optional.

Separately - and depending on how you interpret the treaty - you may be able to obviate some of this reporting if you elect into the treaty; albeit that making a treaty claim may make someone appear higher risk to the IRS under the streamlined program.

Electing into the treaty also reduces your effective tax basis in the plan so may not suit your circumstances especially if you are planning eventually on taking the 25% so-called lump sum commutation.

Don't overlook that the vested accrued benefit is foreign earned income but does not qualify for the foreign earned income exclusion if you are electing to claim this.

Here's a suggestion about how to value your USS pension. Ask your pensions officer (or USS) to calculate what your pension would be if you left the system tomorrow (or  selected date); then multiply it by 20. In theory that's what it's worth now.
USS calculates your pension based on an average of your salary for a few years before you retire. Then it multiplies that base by a fraction of your time on the job over 40 years. That gives the annual payment. USS pays that payment for 20 years.
Caveat - at the time of retirement (and I don't know if this is age-dependent) you are given a choice whether to receive the annual payments (calculated above) or as an alternative, a lump sum of 25% of that total value in exchange for lower yearly payments. That lump sum is not taxable in the UK but is taxable in the US. It might not be a concern of yours right now.
Nevertheless, that's why people are mentioning doing your US return using form 1116 foreign tax credits, ie, you stack up the credits and then use them (take the credit against your tax liability) when you have a lot of income to report to the US. So, the year I took my lump sum, I had a lot of income reportable to the US. My payment of UK tax didn't offset the liability (because the lump sum wasn't taxable in the UK). So I applied my foreign tax credits against my US tax liability.
If you dont need to use the foreign tax credit in a given year or years - it can only be carried forward for 10 years. I was old enough (& closer to retirement) so that they helped me. Since that time, I've been piling them up, but I don't have any extra income to apply then against. I'm sorry to say you just have to figure out if it's worth your effort.

For what it's worth - for many years I didn't report my university's contribution to my pension as income and I didn't mention the treaty, although I should have. I simply didn't know about it. With or without my employer's contributions, I never owed IRS anything. Perhaps that's why nothing ever happened to me.

ps - if you haven't been in the USS plan for long, the total value of your pension won't be much. don't be surprised by that. The full pension benefit is based on 40 years.

OK so say the OP excludes their 6.5% contribution from current US taxation using the treaty how do they declare the pension value.

To evaluate the value of the pension the OP should first find out if they are in the Final Salary or Career Revalued option.

For each year they pay in would they declare pensionable salary X 1/80 for US taxes?
What about the tax free lump sum that's also accrued?

I assume the OP will go through a tax basis calculation for an annuity once they retire and then only pay tax on the value of the benefit over and above their already taxed principal.

http://www.uss.co.uk/Guides%20and%20Booklets%20CRB/CARE%20Guide%20booklet%202013%20v3.0.pdf

Thanks folks!

Honestly at this point I think it is looking very unlikely that I will still be a US citizen at retirement... so I would prefer to take whatever approach allows to expatriate with minimum expense in the next 5-10 years.

I'm afraid I have real trouble understanding my options - and whether and where to declare the 16% which may or may not really be 16% and the possible value of my pension. I am hoping to speak with my tax advisor in the next few days, but thanks for all the input. So far they just said to include employers pension contributions as income - but I have no idea how to do that... If the 16% is not really 16% what do I put? I also read that it is not "earned income" so I would actually have to declare it somewhere else and would not be covered by the exclusion?

In my informal survey of US citizen employees in my department so far 5/5 are not currently filing (I can see why!) so I was not able to get any help from them!

The 16% is mythical because the USS is significantly in deficit. The actual cost will be whatever your employers' actuaries tell them will be required to meet the benefits you are promised.

So what should I put as the employers contribution (and where should I put this) ?

You are required under code section 402(b) to enter the vested accrued benefit of the plan each year. This is a legal obligation and is not optional.

Electing into the treaty also reduces your effective tax basis in the plan so may not suit your circumstances especially if you are planning eventually on taking the 25% so-called lump sum commutation.

I don't really understand this. Where should enter the vested accrued benefit and how can I determine this?

What does "reduces your effective tax basis" mean? Does it mean I have more tax to pay when the pension pays out (than if I had included my pension contributions as taxable income and offset them with foreign tax credit?)

Don't overlook that the vested accrued benefit is foreign earned income but does not qualify for the foreign earned income exclusion if you are electing to claim this.

I don't understand this again but I think its because I don't know really what "vested accrued benefit" means. Vested means when it is paid out to me? or when it is in the plan?

If I understand there are two main options. Exclude employer + employee contributions up to $17k under the treaty, which requires filling out a 8833 and inserting some clause there which remains a mystery. (Could I also just exlcuder employer contributions under the treaty but include my personal contributions in my normal foreign excluded income)?

The second option is to include employer + employee contributions as taxable income. Employee contribtuions can be included in the foreign earned income exclusion, but employer contributions can not be, so to avoid paying tax in this situation one should use 1116 to claim foreign tax credit to offset the tax due on the employer contributions. But then one may or may not need need to declare the pension as some sort of trust.

But then there is some difference in what ends up in the pension depending on which of these two routes are taken which I don't understand. Is the second one better? Or are they both equivalent? In both situations the gains and the eventual payments are still subject to income tax?

I want to keep my citizenship for the next 5 or 10 years to have the option should work take me there, but given this rediculous tax situation it seems much better to renounce citizenship significantly before retirement (perhaps in 10 or 20 years). Do either of the above have an impact on that? Ie would I have to pay tax on the pension I had not received yet when renouncing citizenship?

I'm sorry - I am trying to keep positive but this is the third full day I've spent on this now (and much more time over the last two weeks). It just seems obscene to put people through this - I have never earned more than $48000 in a year. Now it seems that the 1 year of pension I was so happy to finally have at the age of 32 is more trouble than it is worth! Effectively I need to funnel several times more than my personal pensioin contributions directly to a tax advisor each month in order to deal with the employer contributions - and I should certainly forget about having any sort of savings!

Yours in desperation,