# Totalization Benefit - backdating?



## iota2014 (Jul 30, 2015)

The UK-US Totalization Agreement entered into force in 1985, but I didn't hear of it until last summer, after I first heard of citizenship-based taxation and started reading the various expat forums trying to get my head round what I was supposed to do. When I read about Totalization Benefits, I applied, via the Federal Benefits Unit in the London Embassy. The award has now come through, based on my 14 US credits and backdated six months.

Welcome news, but I'm now wondering if it shouldn't be backdated to 2000, when I retired. I did contact the SSA at the time, to check whether I had enough credits to be entitled to any benefit, and was told no, which is what I expected to hear. But shouldn't the answer have been "yes"?

The US-UK Totalization Agreement states:


> You don't have to do anything to have your credits in one country counted by the other country. If we need to count your credits under the U.K. system to help you qualify for a U.S. benefit, we will get a copy of your U.K. record directly from the United Kingdom when you apply for benefits. If U.K. officials need to count your U.S. credits to help you qualify for a U.K. benefit, they will get a copy of your U.S. record directly from the Social Security Administration when you apply for the U.K. benefit.


https://www.ssa.gov/international/Agreement_Pamphlets/uk.html

Appreciate any opinions on whether it might be worth lodging an appeal.


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## BBCWatcher (Dec 28, 2012)

You can try. Actually you have to let the SSA know which treaty country or countries to check when calculating a benefit -- they're not _quite_ that omnipotent. What they really meant is that you don't have to fetch or supply paperwork.

Don't worry too much about anything before age 70 that you didn't get. Your benefit is adjusted upward, and rather significantly, up until your age 70. Moreover, if you were collecting non-U.S. benefits before then then you didn't get hit with the WEP adjustment on the U.S. side. Assuming you're in good health it was probably prudent to wait until age 70 anyway given the upward age adjustment and avoidance of the WEP.

Do you have a spouse (same or opposite sex)? Has she/he reached age 62? If so, have you asked SSA about getting your spouse his/her benefit? Your spouse should also assume your full U.S. benefit if you predecease him/her.


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## iota2014 (Jul 30, 2015)

BBCWatcher said:


> ...you have to let the SSA know which treaty country or countries to check when calculating a benefit...


Do you know where I might find that rule stated? From my point of view, I couldn't have told them to check the UK/US Totalization Treaty, not knowing it existed.

I suspect the person who responded to my enquiry (a human being, probably, in those days) didn't know either, and my UK address didn't register as possibly requiring treaty checks in order to determine whether a benefit was payable.



> Don't worry too much about anything before age 70 that you didn't get. Your benefit is adjusted upward, and rather significantly, up until your age 70. Moreover, if you were collecting non-U.S. benefits before then then you didn't get hit with the WEP adjustment on the U.S. side. Assuming you're in good health it was probably prudent to wait until age 70 anyway given the upward age adjustment and avoidance of the WEP.


Can you explain about the age adjustment factor? If the benefit was backdated to 2000 (or rather 2002, as that was when I turned 62), would that reduce future payments?

WEP does not apply.



> Do you have a spouse (same or opposite sex)? Has she/he reached age 62? If so, have you asked SSA about getting your spouse his/her benefit? Your spouse should also assume your full U.S. benefit if you predecease him/her.


Yes, my ex was tickled pink (or pinkish, as 50% of a small pension only really justifies a fairly moderate expression of glee).


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## iota2014 (Jul 30, 2015)

Found a calculator at https://www.ssa.gov/planners/retire/retirechart.html

My "full retirement age" is 65.5, so if I understand correctly, the benefit could be backdated to 2006 without reduction. But if it's only backdated to 2011, I still get the full unreduced amount plus late retirement credits.

Thanks, BBCWatcher. A very helpful tip.


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## BBCWatcher (Dec 28, 2012)

Correct. At this point I'd focus on trying to recover back to your age 70 but no farther back so you can keep your current benefit level (plus the annual inflation adjustments from this level). How far back your spouse tries to recover "depends," but the basic answer is that you'd try to recover back as far as when her current benefit amount would have started but no farther back. I can't really guess what age that would be without more information.

No guarantees you'll be able to recover the missing payments, but heck, why not try. Just put your case as best you can in writing and see how it goes.


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## iota2014 (Jul 30, 2015)

I'll give the FBU at the London Embassy a ring, as they handled my application. They've been very helpful - only slightly disconcerted when I renounced halfway through the application process.


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## BBCWatcher (Dec 28, 2012)

Does this mean you're subject to withholding and filing 1040NRs?


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## iota2014 (Jul 30, 2015)

It's not US taxable.


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## BBCWatcher (Dec 28, 2012)

So no withholding you then have to claim back via a 1040NR? Thanks due to the U.K.-U.S. tax treaty?


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## iota2014 (Jul 30, 2015)

Correct. 17.3


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## BBCWatcher (Dec 28, 2012)

Very nice.

When you start to see direct deposits, it'd be interesting to know how close you're getting to a favorable exchange rate if you don't mind checking. I've wondered for a long time how well the SSA does in keeping currency conversion costs under control to the extent they can. If you have some anecdotes to share along those lines and when the time comes, that'd be great.


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## iota2014 (Jul 30, 2015)

Not much information on currency exchange rates, I'm afraid. It appears in my account as a sterling payment from Citibank. No doubt Citibank's commission has been deducted as part of the exchange.


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## iota2014 (Jul 30, 2015)

iota2014 said:


> It's not US taxable.


Just spoke to HMRC, hoping not to be lumbered with annual Self Assessment just to pay the UK tax due on this pension. Success - they're changing my tax code to withhold the tax.


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## Bevdeforges (Nov 16, 2007)

BBCWatcher said:


> When you start to see direct deposits, it'd be interesting to know how close you're getting to a favorable exchange rate if you don't mind checking. I've wondered for a long time how well the SSA does in keeping currency conversion costs under control to the extent they can. If you have some anecdotes to share along those lines and when the time comes, that'd be great.


I'm not quite there yet, but according to AARO and some of the other expat organizations here, the Consulate does a very good job with the exchange rate on direct deposit of SS benefits. Given the total amount they are dealing with each month, it's kind of no big surprise that they can get the best rates - or certainly much better than an individual could get for that sort of monthly deposit.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

iota2014 said:


> It appears in my account as a sterling payment from Citibank.


You can check sites such as Oanda.com to look up that particular day's average U.S. dollar-U.K. pound exchange rate and see how close you got, in percentage terms.

I've heard the same thing Bev has, that the SSA does pretty well, but I'm not sure _how_ well. It'd be interesting to know if you happen to get a chance and can look at a couple payments.


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## iota2014 (Jul 30, 2015)

iota2014 said:


> Just spoke to HMRC, hoping not to be lumbered with annual Self Assessment just to pay the UK tax due on this pension. Success - they're changing my tax code to withhold the tax.


Unsuccess. Turns out you have to register for Self Assessment for any foreign income, even though the tax is being withheld. 

It does make sense but is a nuisance.

To recap, for anyone else looking for info - US SS retirement benefit can be paid in sterling into your UK bank account via Direct Deposit. And is not US-taxable (UK-US Tax Treaty, Article 17(3)), but _is _UK-taxable and requires registering for UK Self Assessment.

And for Totalization benefits, the WEP does not apply.


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## theOAP (Aug 30, 2010)

iota2014 said:


> To recap, for anyone else looking for info - US SS retirement benefit can be paid in sterling into your UK bank account via Direct Deposit. And is not US-taxable (UK-US Tax Treaty, Article 17(3)), but _is _UK-taxable and requires registering for UK Self Assessment.


To be pedantic (could I ever resist?) HMRC will only tax you on 90% of the US SS payment. The other 10% is tax free in the UK for "foreign pensions" on self assessment.

And, a heads up for future reference. All will go along nicely for this year with HMRC deducting the additional tax for US SS from your LA pension, according to your tax code. Later in the year, you'll file the self assessment form and submit it. HMRC will send you a computation of tax, and you'll likely either owe/have a refund of a small amount due to exchange fluctuations.

Then, the HMRC computer will issue a new tax code for the following year which will totally ignore the deduction for US SS (if your case is like others). So, whenever you receive a new code, check it carefully, and be prepared to call HMRC to have the code adjusted (again). It's not a problem, and HMRC will not see it as a problem, but if you want to avoid a larger payment next year, ....call.


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## theOAP (Aug 30, 2010)

theOAP said:


> ......, but if you want to avoid a larger payment next year, ....call.


Sorry, that should have read..."if you want to avoid a large, single payment next year (rather than the smaller monthly deductions),....call".


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## iota2014 (Jul 30, 2015)

Thanks for the heads-up. That would suit me, actually. No advantage in having it withheld since it doesn't let me out of Self Assessment.


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## BBCWatcher (Dec 28, 2012)

Is there any interest/late payment/penalty charge if your withholding is insufficient? If not, great, I'd also pay the lump sum.


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## iota2014 (Jul 30, 2015)

I shouldn't think so. It's been years since I last had to send in a return and the rules will have changed but I expect I'll be paying in advance.

Sigh. I can't believe that after all these years of never having to give a thought to tax matters, this year has suddenly turned into such tax drudgery. First having to plough through acres of doubleplusungood IRS-speak, and now at the point of escape from the US tax code I find myself back in UK Self Assessment.


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## BBCWatcher (Dec 28, 2012)

Ah, OK. If it's a lump sum _in advance_ then that's not so thrilling. There is some time value to money, after all.

You've brought up a very good point. It's not always possible to avoid tax complications even if you exit a particular country's tax system. For example, if you have or expect to have U.S. source income, that ought to be part of the calculus in deciding whether to renounce U.S. citizenship/permanent residence (or document relinquishment). One should also look at the nature of that U.S. source income, because U.S. persons can enjoy certain U.S. tax preferences that non-resident aliens don't enjoy. Even a tax or social security treaty might surprise you since a change in citizenship status could swing things in a different, unexpected direction. On top of all of that, nobody can predict the future; tax policies and life circumstances can change quickly. Maybe the Yellowstone Caldera will blow its top, maybe the Gulf Stream will reverse and plunge Europe into snow and ice, maybe Vesuvius will blow its stack, maybe Russia will invade a NATO member, or maybe Singapore will introduce (mild) citizenship-based taxation. Who knows?  (OK, the last one actually happened on November 1, 2015, although it probably won't disrupt Eduardo Saverin's partying too much. )


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## iota2014 (Jul 30, 2015)

It's not paying in advance that annoys me, just the annual tedium of the tax return. 

A minor shade on my glee at recouping from America the $2350 renunciation fee.


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## theOAP (Aug 30, 2010)

iota2014 said:


> It's not paying in advance that annoys me, just the annual tedium of the tax return.


It's not really a problem. Take tax year 2015/16, which ends on 05 April, 2016 for example. The absolute deadline for filing a return is 31 January, 2017. You may pay any additional amount (beyond PAYE) earlier, or wait until then.

Have a read of the HMRC site, but there are several ways you may pay tax owing. PAYE is the norm. Paying by an adjustment to your tax code is an alternative (in the above case, in the 2017/18 year), and payment can also be made by a UTR (HMRC account) twice a year in January and July (Jan. 2017 and July 2017 in the above case).

Not a problem for 98% of those paying UK tax. Those who may suffer, and the reason for keeping on top of tax codes, are the US Persons. _iota2014_ no longer has that problem.

You can end up paying low tax in year 1, a lot of tax in year 2, little tax in year 3, a lot in year 4, rinse, repeat.... For the American pensioner (FTC's), this can result in excess credits in year 2, claiming and using those credits in year 3, more excess credits in year 4, and claiming and using those credits in year 5. That's the reason for attempting to have HMRC take constant full deductions all through the year, but requires staying on top of the tax code and the natural instincts of the HMRC computer. The HMRC computer prefers to delay payment, and for HMRC, it's not a problem. Again, it may only be a problem for those Americans filing solely FTC's.


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## iota2014 (Jul 30, 2015)

theOAP said:


> It's not really a problem.


Correct. It's just a bloody nuisance.


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