Where to report employer pension contributions

UK/US dual citizen residing permanently in UK with no home/assets in the US here.

I work for a UK employer and contribute 5% of my salary to a employer approved workplace pension. The employer matches this 5%. I do plan on reporting this account on FBAR however I am unsure where to report (if I need to) the employer's contributions on my 1040?

Is this considered foreign earned income? Do I add it to my gross salary and then have to apply my FEIE to it? If not, where would I report it? People have talking about the filling out the 8833 to declare a tax treaty position so it is not taxed. Where would this income fall under in the 1040/2555 in such a case and how would you deduct it on your 1040?

Finally, I read some things about UK pensions and having to fill out an 8938, however reading the instructions for this it says that for foreign residents the value has to be >$400k however mine is nowhere near that so assuming I do not file this form?

Many thanks,
J

I read something else about also reporting

If you want to opt into Article 18(5) of the US-UK tax treaty, you get tax deferral on contributions to a UK pension (both yours and employer's). In this case you would not report them anywhere on the 1040. Instead file an 8833 and report the details of the contributions there. You recognize the income and pay the tax many years down the road when you take the money out.

If not opting into the treaty, contributions should probably be included in the wages figure on the 1040. There are a few schools of thought in terms of how you treat the gains within the pension in that case. I'm not super knowledgeable in that respect, so I'll leave that to others.

I asked the question about Form 8833 to my tax preparer. I got this answer

No, we do not need to file form 8833. According to IRS tax code, retirement contributions in the UK are considered going to an IRS qualified account. We use form 8833 when we are going against IRS tax code and claiming treaty benefits, in this case that is not happening. The tax code has already expanded to include this benefit, and therefore the form is not needed.

I asked the question about Form 8833 to my tax preparer. I got this answer

So your preparer is saying that US domestic law recognizes UK pensions as qualified retirement plans. That goes against what a lot of people have said on this board for a long time, so it might be wise to confirm they know what they're talking about, by asking them to cite the provisions of the tax code that support their argument.

If on the other hand, the tax code has in fact changed to recognize UK pensions, then a closer reading of the code itself could be in order to determine any other nuances that may come into play if not electing into the treaty.

UK/US dual citizen residing permanently in UK with no home/assets in the US here.

I work for a UK employer and contribute 5% of my salary to a employer approved workplace pension. The employer matches this 5%. I do plan on reporting this account on FBAR however I am unsure where to report (if I need to) the employer's contributions on my 1040?

Employer contributions to a foreign pension plan cannot be excluded form US taxation with the FEIE. They are considered an employment benefit. So you have to put them on the 1040 and pay tax on them unless you claim tax treaty exemption. If you don't use the treaty you might be able to avoid US tax on them by applying tax credits, or personal allowances and exemptions.

I asked the question about Form 8833 to my tax preparer. I got this answer

No, we do not need to file form 8833. According to IRS tax code, retirement contributions in the UK are considered going to an IRS qualified account. We use form 8833 when we are going against IRS tax code and claiming treaty benefits, in this case that is not happening. The tax code has already expanded to include this benefit, and therefore the form is not needed.

I do not agree with your tax preparer. An IRS qualified retirement account has certain specific attributes that a UK retirement account can never have....the most important is being set up in the US.

I would be very interested to  see the bit of the IRS code that gives UK retirement funds qualified treatment?

Thanks for all of the comments. I suppose the fact that 3 people have replied with 3 different views/statements of how to treat this highlights the finding I have made in research is that everyone thinks something slightly different, even tax advisors and the rules are really not clear.

Whilst the articles I read from tax firms on this are often complex and go into heavy financial speak (which I am not well versed in), one thing I DO understand which is consistent in all of the articles I read is that the IRS do not view foreign pensions the same way that they view an approved US one (IRA or 401(k)). Therefore I would have to disagree with your tax preparer omglolmax, unless of course there is a more recent treaty amendment that has not been talked about much by other tax firms that put out advice on the internet. Now a UK pension might qualify under IRS legislation and be “certified deemed compliant” however from what I read, the tax treaty must be cited as this is not a given and certainly many other foreign countries do not have such a tax treaty in place.

So nun, can I just clarify – are you agreeing with politicfool when you say “So you have to put them on the 1040 and pay tax on them unless you claim tax treaty exemption”? I.e. if I fill out 8833, claim tax treaty exemption, I do NOT need to put this contribution on the 1040? If so, do I state the amount on the 8833 or just state the treaty?

As for the 8833 itself, well that is a whole different matter. How they expect a layperson to do this themselves is beyond me!!

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So nun, can I just clarify – are you agreeing with politicfool when you say “So you have to put them on the 1040 and pay tax on them unless you claim tax treaty exemption”? I.e. if I fill out 8833, claim tax treaty exemption, I do NOT need to put this contribution on the 1040? If so, do I state the amount on the 8833 or just state the treaty?

The instructions for the 8833 say that you should describe the amounts (or an estimate of them) to which the treaty provisions are being applied. On my 8833, I reported the following amounts for each pension account:

• Balance of the pension scheme on December 31, 2014
• Balance of the pension scheme on December 31, 2015
• Contributions during 2015
• Growth during 2015, including unrealized gains
• Cost basis from prior year (if any)
• Cost basis for 2015 (if any)

Thanks politicfool.

In previous years my pension was with a different provider and I received June statements. In 2015 it got transferred over to a different provider (company's choice) and I can view year end on this provider but only have access to June statements in previous years. Is it okay to use that amount on FBAR and 8833? I cannot get the other info for calendar year end.

Can I ask what "cost basis" means?

Thanks!

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Your pension provider should be able to tell you the balance on any specific date, so just get in touch with them if your statements don't give you the year end balances.

Cost basis means the amount of non-deductible (for US purposes) contributions that have been made to a pension. When you withdraw those amounts, they are not US taxable since they have already been taxed. If you use the treaty to exclude all contributions, you won't have any cost basis. Publication 17 is a good place to read about cost basis in retirement plans: https://www.irs.gov/publications/p17/ch17.html

Hi all, I hope this isn't driving the thread off-topic...

I went back to my tax preparer asking for the provisions in the tax code that make UK pension accounts equal to US qualified pension accounts. The answer was disappointing.

However, I took a look at the instructions on Form 8833, which led me to the following provision

Pursuant to the authority contained insection 6114 (b), reporting is waived under this section with respect to any of the following return positions taken by the taxpayer
[...]
That a treaty reduces or modifies the taxation of income derived from dependent personal services, pensions, annuities, social security and other public pensions, or income derived by artistes, athletes, students, trainees or teachers

I've seen this provision quoted on this site before, but never really followed the discussion. Why wouldn't this be the answer to what my tax preparer told me?

Hi all, I hope this isn't driving the thread off-topic...

I went back to my tax preparer asking for the provisions in the tax code that make UK pension accounts equal to US qualified pension accounts. The answer was disappointing.

However, I took a look at the instructions on Form 8833, which led me to the following provision


I've seen this provision quoted on this site before, but never really followed the discussion. Why wouldn't this be the answer to what my tax preparer told me?

The "income from dependent personal services" probably covers your salary, but does it include the employer's pension contributions. Also are the gains in the pension covered by this exemption?

There are multiple ways to achieve the tax deferral on pension contributions, but the exact mechanics of how to fill out the forms is a bit of a mystery to me. So here are some thoughts.

1) Using the treaty.
Claim tax exemption on employee and employer pension contributions. What do you fill in for your wages on the 1040.....is it just your taxable wages? So you don't include the pension contributions anywhere on the 1040, but you describe them on the 8833 and give balances on the usual informational forms. How do you fill out 8833 exactly?

2) Using FEIE and the treaty.
You include your taxable wages and employee pension contributions on the 1040 and exempt them using FEIE. Then you either use standard deductions and exemptions to cover the employer contributions (would you enter the employer contribution as "Other Income") or use the treaty. If you use the FEIE and you retire to the US it looks to me that you will have a tax free US basis in the pension as the income will not be UK taxable and you've exempted the contributions from US tax.......is this right?

3) Use FTCs
If you have excess FTCs and exemptions and allowances that will cover the tax on your income and yours and the employer contributions, just use those. Again where does the employer pension contribution go on the 1040, in "Other Income"? This would also give a US tax free basis and there would be no US tax if you move back to the US.

4) In all this I assume you claim treaty relief on gains as the taxation of those given the types of funds included in a UK pension fund might get very complicated.

The details of all this are tricky.

The "income from dependent personal services" probably covers your salary, but does it include the employer's pension contributions. Also are the gains in the pension covered by this exemption?

I was hoping that it would fall under income from dependent personal services... but who knows?! Logical interpretation of the actual words in these things doesn't seem to count for much...

1) Using the treaty.
Claim tax exemption on employee and employer pension contributions. What do you fill in for your wages on the 1040.....is it just your taxable wages? So you don't include the pension contributions anywhere on the 1040, but you describe them on the 8833 and give balances on the usual informational forms. How do you fill out 8833 exactly?

Exactly, I especially have no idea how to figure out which provisions from the tax code I'm overruling...

The details of all this are tricky.

Amen! In my opinion this should be very simple as it is explicitly regulated by the tax treaty. The fact that my qualified accountant and highly knowledgeable people on this forum have fundamentally differing opinions is scary. I hired this firm, which is specialized in expat tax returns, to do my taxes for ease of mind. But that the rules are so complicated that I still have to worry about it seems so disproportionate to me. Especially since we're only talking about several thousand Pounds in my case....

I'm not sure what to do, my return is already filed without 8833, and I just want to believe that for SOME reason it's ok that way. But if I rely on false information from my accountant for the next 40 years, I'll be the one suffering...

/rant

By the way, when I asked where in the tax code UK pensions are qualified in the US, I was given this document.

https://www.irs.gov/pub/irs-utl/competent_authority.pdf


It talks about definitions under the treaty and makes no mention of UK pensions being qualified pensions under US domestic law....

By the way, when I asked where in the tax code UK pensions are qualified in the US, I was given this document.

https://www.irs.gov/pub/irs-utl/competent_authority.pdf


It talks about definitions under the treaty and makes no mention of UK pensions being qualified pensions under US domestic law....

That's not IRS tax code.....it's an agreement between the US and the UK to clarify the application of the treaty.