# US Taxes On UK Benefits?



## PiperC (5 mo ago)

Hello Everyone, 🙂

I'm doing my 2021 US taxes and I'm wondering if I need to pay taxes on my UK benefits. 

In 2021, I earned £2,583.00 on Universal Credit. I know that you don't pay taxes on these benefits in the UK, but the US DOES tax unemployment benefits. So I'm assuming I need to pay taxes on these benefits on my US tax return, but not completely sure? So just looking for clarity here.

If I do need to pay US taxes on them, then in order to convert pounds to dollars, do I need to look up what the conversion rate would have been as of December 31, 2021? I think there is an official US governmental guide for converting currency for taxes somewhere, but not sure where. 🤔

Thank you so much again everyone for your input!
🙏🙂🙏
Piper


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## Bevdeforges (Nov 16, 2007)

Take a look at IRS publication 525 on taxable and non-taxable income. Round about page 29 (of the pdf version) there is a section headed up "Welfare and other Public Assistance Benefits." From this, I would say that any "welfare" type benefits from a foreign government can be safely considered to be non-taxable. 

There is also a section on unemployment benefits - but all the examples and listings specifically refer to US Federal and State benefits - nothing to any other sort of foreign source benefits. I know I've used this to justify considering foreign unemployment as non-taxable (and non-reportable) and have never had any comeback on that. (Foreign governments don't generally report this type of benefit payment to the IRS or anyone else, for that matter.)


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## Moulard (Feb 3, 2017)

Given Universal Credit is basically low income support I would think it would clearly fall under the social security banner and is not taxable by the US under Article 17(3) - this paragraph is also protected by the savings clause which would otherwise allow the US to tax it as if the treaty was not in force.

Once upon a time, I would have said that you would still have had to report it as non-taxable income, but at some point in the last few years 1040 instructions now clearly state that you don't have to report non-earned income that is not taxable by treaty..


Unemployment benefits are different. While they are a form of social welfare payment, I understand that the position of the IRS (I cannot recall what or where I saw it.. I presume a private letter ruling) is that these do not meet the definition of a social security, unless specifically called out in the treaty (typically it would not be in the treaty itself but rather an exchange of notes that accompany and help define what is meant in the treaty)

That said, there is plenty of scope for creative interpretation. I know of people who have chosen to claim it as earned income to be able to exclude it as foreign earned income (mutual obligations meant that effort had to be expended to receive it means it was earned) I know of many others who have chosen to treat it as social security. With no clear guidelines, it is up to the IRS to tell you you are wrong.. which we know will not happen unless there are other issues in a return that draws attention to it.


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## PiperC (5 mo ago)

Thank you very much for that information. Really great to know.🙂 So since I didn't have any other income last year, should I simply not include that amount anywhere and just fill in that I earned -0- then?

🙏🙂🙏
Piper


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## PiperC (5 mo ago)

That's great information Moulard. It's very kind of you to take the time to write that down for me. Appreciate it, as it definitely helps.🙏😊🙏 
Piper


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## Moulard (Feb 3, 2017)

Personally, If my income (including non taxable) was over the filing threshold, I think I would file.. If only to not have a gap in my tax records

If I chose to file, I would not report 0 income (more likely to raise flags than not filing at all), but would make sure that the end result was 0 US tax liability.. 

note that under 26 CFR § 301.6114-1 - Treaty-based return positions you do not even need to justify the position as reporting of treaty based returns is waived for social security and other public pensions


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## PiperC (5 mo ago)

That's really good to know Moulard, thank you for that. I too feel a bit uncomfortable writing in 0 income and had wondered if that would be a flag as well. I'll definitely give it a go to see if I can even it out to 0 at the end if I report the universal credit income. 

And really great to know about the 26 CFR treaty as well! I like having all the back up I can.😄 

Thanks so much for your advice Moulard. You and Bevdeforge are real stars! 🌟

🙏😊🙏
Piper


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