Author Topic: US sourced pension taxes, no tax credit available?  (Read 387 times)

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Offline Nan D.

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US sourced pension taxes, no tax credit available?
« on: December 25, 2017, 04:50:54 PM »
So, if my sole income is from USA sources (pension, IRA), it appears that I cannot use the USA Foreign tax credit to avoid double taxation. IRS pub 514 says the credit applies to taxes on foreign income.

If that is the case, does the UK allow a credit for tax paid to the IRS?



« Last Edit: December 25, 2017, 05:19:08 PM by Nan D. »

Offline guya

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Re: US sourced pension taxes, no tax credit available?
« Reply #1 on: December 25, 2017, 05:08:04 PM »
So, if my sole income is from USA sources (pension, IRA), it appears that I cannot use the USA Foreign tax credit to avoid double taxation. IRS pub 514 says the credit applies to taxes on foreign income.

If that is the case, does the UK allow a credit for tax paid to the IRS?
In the circumstances described the UK has the primary right to charge tax (assuming one is filing on the arising basis in the UK).  Consequently, the UK will not give any credit for US tax withheld or paid.  Some of the points in this discussion are relevant:
https://www.taxation.co.uk/Articles/2013/07/24/310901/double-taxation

Offline Nan D.

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Re: US sourced pension taxes, no tax credit available?
« Reply #2 on: December 25, 2017, 05:49:06 PM »
Thanks for the link. I registered for temporary access.

https://www.gov.uk/government/publications/dual-residents-hs302-self-assessment-helpsheet/hs302-dual-residents-2017

seems to indicate that for May 1- Dec 31 2017 I am a USA resident. I will have to file a 1040.  The form also seems to indicate I could get a credit back for the taxes due to the IRS for that period. 

Beginning Jan 1, 2018, everything changes, as I will be in an IRS 1040NR going forward.  At that point, I still can't use the IRS credit for taxes paid on foreign income as I won't have any. So I will have to use the form to reference the treaty, correct?

Offline guya

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Re: US sourced pension taxes, no tax credit available?
« Reply #3 on: December 25, 2017, 06:02:22 PM »
Thanks for the link. I registered for temporary access.

https://www.gov.uk/government/publications/dual-residents-hs302-self-assessment-helpsheet/hs302-dual-residents-2017

seems to indicate that for May 1- Dec 31 2017 I am a USA resident. I will have to file a 1040.  The form also seems to indicate I could get a credit back for the taxes due to the IRS for that period. 

Beginning Jan 1, 2018, everything changes, as I will be in an IRS 1040NR going forward.  At that point, I still can't use the IRS credit for taxes paid on foreign income as I won't have any. So I will have to use the form to reference the treaty, correct?
My apologies. I misunderstood. I had assumed (wrongly) that you are a US citizen. Why is your last day of US residence for US tax purposes going to be 31 December 2017?  Why not file in the US for 2017 as a dual-status taxpayer?

Online larrabee

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Re: US sourced pension taxes, no tax credit available?
« Reply #4 on: December 25, 2017, 06:19:45 PM »
My apologies. I misunderstood. I had assumed (wrongly) that you are a US citizen. Why is your last day of US residence for US tax purposes going to be 31 December 2017?  Why not file in the US for 2017 as a dual-status taxpayer?

Nan is dual US/Irish.
March 28th 2013-Moved to UK, husband on spouse visa.Oct 20th 2015-Applied by mail for FLR(M).Feb 1st 2016 FLR(M).March 7th 2018 ILR. YAY! March 21st NCS&JCAP appointment.

Offline guya

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Re: US sourced pension taxes, no tax credit available?
« Reply #5 on: December 25, 2017, 06:29:31 PM »
Thanks for the link. I registered for temporary access.

https://www.gov.uk/government/publications/dual-residents-hs302-self-assessment-helpsheet/hs302-dual-residents-2017

seems to indicate that for May 1- Dec 31 2017 I am a USA resident. I will have to file a 1040.  The form also seems to indicate I could get a credit back for the taxes due to the IRS for that period. 

Beginning Jan 1, 2018, everything changes, as I will be in an IRS 1040NR going forward.  At that point, I still can't use the IRS credit for taxes paid on foreign income as I won't have any. So I will have to use the form to reference the treaty, correct?
I assume that Nan must have relinquished US citizenship prior to 31 December 2017, or IRS Form 1040NR would not be relevant in this discussion.

Offline vadio

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Re: US sourced pension taxes, no tax credit available?
« Reply #6 on: December 25, 2017, 07:58:43 PM »
Nan - read this: https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit-special-issues

The UK will have primary taxing authority; you 'resource' the income on Form 1116 so that it becomes 'foreign income'. That allows you to take the FTC.
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Offline durhamlad

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Re: US sourced pension taxes, no tax credit available?
« Reply #7 on: December 25, 2017, 10:56:04 PM »
Nan - read this: https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit-special-issues

The UK will have primary taxing authority; you 'resource' the income on Form 1116 so that it becomes 'foreign income'. That allows you to take the FTC.

Exactly. I have 2 US private pensions which are taxed by HMRC and when I file my US taxes I file form 1116 and check the “Resourced by Treaty” box to claim the UK taxes paid on those US
pensions as a credit against my US tax return.
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Offline Nan D.

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Re: US sourced pension taxes, no tax credit available?
« Reply #8 on: December 25, 2017, 11:12:11 PM »
Thanks, all.

I thought 1040NR was for non-residents (aka no longer living in the States). So all I have to do is the 1116 form (with the usual 1040), and not the 8833 form (which references the 1040NR form). I am going to try TurboTax and see how that works, when it's time (aka the 2018 tax year IRS filing). At present, because I don't know what my taxes will be for HMRC 2017/18 (officially), I can't pay them, so I can't get any sort of IRS credit for IRS year 2017.  It'll just be a carryforward situation permanently, I guess, as my UK taxes will be more than my USA taxes.

So I can go ahead and stop withholding on my pension so that I have the cash to pay HMRC, and then take the credit for what I pay HMRC off my taxes next year.

Appreciate all the help. REALLY appreciate the help. (The IRS scares the willies out of me.)
« Last Edit: December 26, 2017, 12:32:07 AM by Nan D. »

Offline durhamlad

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Re: US sourced pension taxes, no tax credit available?
« Reply #9 on: December 26, 2017, 09:19:20 AM »
Thanks, all.

I thought 1040NR was for non-residents (aka no longer living in the States). So all I have to do is the 1116 form (with the usual 1040), and not the 8833 form (which references the 1040NR form). I am going to try TurboTax and see how that works, when it's time (aka the 2018 tax year IRS filing). At present, because I don't know what my taxes will be for HMRC 2017/18 (officially), I can't pay them, so I can't get any sort of IRS credit for IRS year 2017.  It'll just be a carryforward situation permanently, I guess, as my UK taxes will be more than my USA taxes.

So I can go ahead and stop withholding on my pension so that I have the cash to pay HMRC, and then take the credit for what I pay HMRC off my taxes next year.

Appreciate all the help. REALLY appreciate the help. (The IRS scares the willies out of me.)

1040-NR is for non-resident Aliens so if you are a non-resident USC then you should file a 1040.

I don’t believe my company would allow me to stop withholding altogether as the form I have to send them, a W-4, doesn’t have that option, but I don’t know as I still have US taxes to pay because of other income from Roth conversions. Hopefully you will be able to get your withholding stopped.

Although HMRC only requires self assessments to be in by end of January I intend to have mine done by end of December so that it is better aligned with the IRS in future years.
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Offline Nan D.

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Re: US sourced pension taxes, no tax credit available?
« Reply #10 on: December 26, 2017, 12:20:25 PM »
They wouldn't allow me to stop withholding if they were paying the pension to a non-USA bank account, but since it's going to a USA bank account I think I can get them to do that. It appears so from the form I found on their website.

Yes, that sounds like a plan - do everything in Decembers. Next year I will have had a HMRC tax bill for 17/18 and will make sure I pay it prior to the end of the year so I can do my USA taxes as soon as my 1099 forms come in (in February?).