# Reporting UK Retirement Benefits on US Tax Return



## shylynn

I am married to a British citizen, living in England with my ILR. I work full time and have filed my US taxes for the past 3 years with no difficulty. However this year I have a question. When my husband applied for his retirement benefits last year, we discovered I was entitled to a small amount of benefits as I had reached the UK retirement age. We also learned I was eligible for additional benefits under his retirement. 

It is my understanding that since I have more than enough quarters of earnings, my Social Security will not be reduced by this amount. Regardless, I believe I still am required to report this as income on my tax return with my salary. However I can find no official way to receive an accounting of the actual amount paid last year. I have heard in the US individuals receiving Social Security are sent a 1099 type form each year for filing purposes. Since my retirement is counted against my personal allowance with my wages and taxed in that manner, there is no reason for the UK to send me any statement of amounts paid.

Does anyone know of means of acquiring this information? And failing that, is the IRS likely to accept my accounting of monies paid without any accompanying documentation? 

Thanks for your help, as always!


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## theOAP

shylynn said:


> I am married to a British citizen, living in England with my ILR. I work full time and have filed my US taxes for the past 3 years with no difficulty. However this year I have a question. When my husband applied for his retirement benefits last year, we discovered I was entitled to a small amount of benefits as I had reached the UK retirement age. We also learned I was eligible for additional benefits under his retirement.


You don't mention what the benefits are, so I am going to_* assume *_you are talking about a UK State Pension.



shylynn said:


> It is my understanding that since I have more than enough quarters of earnings, my Social Security will not be reduced by this amount.


If you have 30 years or more of contributions to US Social Security, you will not be WEPed.



shylynn said:


> Regardless, I believe I still am required to report this as income on my tax return with my salary.


The UK State Pension must be reported on a US return, but for the purposes of form 2555 (FEIE) it is not earned income.



shylynn said:


> However I can find no official way to receive an accounting of the actual amount paid last year... Since my retirement is counted against my personal allowance with my wages and taxed in that manner, there is no reason for the UK to send me any statement of amounts paid.


UK tax is never taken from a State Pension payment, but you're correct, the gross amount is included in your yearly UK income by HMRC. The DWP automatically sends the amount you were paid directly to HMRC (UK tax year), and if above the Personal Allowance, you are taxed on the income either through PAYE or self assessment.



shylynn said:


> Does anyone know of means of acquiring this information? And failing that, is the IRS likely to accept my accounting of monies paid without any accompanying documentation?


When the pension was awarded, you will have received a letter from DWP giving the weekly amount of your pension. Multiply the number of weeks received by the weekly amount.
Pension amounts change on 6 April (increase, thanks to the triple lock), so if the pension started before 5 April, you'll need the sum of two calculations.

The other way is to simply review deposits to your bank accounts for the year and total the amount paid.

The IRS will not expect any 1099's, or any other documentation, and will take your word for the correct amount.

The gross amount of the UK State Pension can be entered on either lines 16a & b, or line 21, of US form 1040.


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## maz57

In view of the fact that the IRS would never know if you neglected to report ANY of your UK government pension on your US return (not a recommendation!), they will be happy to accept anything you do report. Even if you had the UK government information statements there would be no point in sending them to the IRS because their system couldn't comprehend them. (There was recently a poster in another thread who did just that with their Canadian info slips resulting in their return being rejected by the IRS system.) 

It might be useful for you to research the US/UK treaty to see what it has to say about the tax treatment of government pensions. In the case of the US/Canada treaty government pensions are only taxed by the country of actual residence. (In effect the US agreed to residence based taxation for government pensions.) Its possible there might be some pleasant surprises in the treaty which make your US filings much easier.


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## BBCWatcher

maz57 said:


> In view of the fact that the IRS would never know if you neglected to report ANY of your UK government pension on your US return (not a recommendation!)....


Not that it matters, but we don't actually know that "fact." The U.S. is getting (or soon will get) FATCA-related financial data from the U.K. and we don't know the level of detail the U.S. will get from that particular financial institution. (We may know the minimum requirement, but we don't know what's actually supplied.) We also don't know what data the U.S. and U.K. would exchange as social security treaty countries, but we do know they exchange data on that basis as well.


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## maz57

BBCWatcher said:


> Not that it matters, but we don't actually know that "fact." The U.S. is getting (or soon will get) FATCA-related financial data from the U.K. and we don't know the level of detail the U.S. will get from that particular financial institution. (We may know the minimum requirement, but we don't know what's actually supplied.) We also don't know what data the U.S. and U.K. would exchange as social security treaty countries, but we do know they exchange data on that basis as well.


Point taken; substitute "likelihood" for "fact". Foreign governments know if a person has a US connection (via passport, visa, residence permits, etc.), but the pension paying agencies of those same governments probably don't have a clue.

We now know pretty much what institutions are going to report under FATCA, but I have yet to hear any mention of foreign governments reporting pension information to the IRS. How could a US taxpayer use a foreign government pension as a vehicle for tax evasion anyway?


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## BBCWatcher

maz57 said:


> How could a US taxpayer use a foreign government pension as a vehicle for tax evasion anyway?


It's benefits fraud, primarily, and that's not hard to imagine. (The tax fraud usually is layered on top of benefits fraud.) Part of the reason various countries signed social security treaties is to make it at least somewhat harder that individuals collect overlapping benefits from two or more countries.

Just as a simple, not particularly imaginative example, let's suppose an individual "borrows" somebody else's social insurance identifier. (This certainly happens in the United States. Undocumented workers frequently "borrow" Social Security numbers.) For example, let's suppose it's a dual U.S./U.K. citizen who primarily lives and works in the U.S. but who perhaps earned a bit of money one summer in the U.K. -- and contributed a bit to the U.K. national insurance system. However, instead, the U.K. "somehow" has a full earnings record for that individual in the U.K. -- thanks to the work history of an undocumented resident who really shouldn't have been in the United Kingdom at all. That's a probable U.K. national pension fraud, a form of identity theft, along with an immigration violation -- and, often, a tax fraud. It would be quite useful to "compare notes" with the U.S. system to uncover such potential fraud patterns. Treaty governments do share data -- that's quite obvious -- but how much they share now, and how much they share in the future, aren't well known.


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## Bevdeforges

Check the provisions of the US-UK tax treaty - the section labeled Pensions. (Usually somewhere around article 18 or so.) That should state who gets to tax a state pension - often it's the country actually paying the pension (so, in this case, the UK) however the UK tax treaty does things "the other way" on a couple of issues, so it pays to check.

United Kingdom (UK) - Tax Treaty Documents (and despite the title, the "Technical Explanation" is usually easier to decipher than the treaty itself).

If you're using tax software, I note that some have a special way to enter "foreign pensions" - where you give the full amount received, and then "taxable amount." I'd go with that approach if you find anything that indicates that the US doesn't tax a UK pension.
Cheers,
Bev


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## theOAP

I suspected there might be some comeback on my previous statement _"The UK State Pension must be reported on a US return". _This topic comes up quite often on US/UK expat sites, in both countries, as well as professional sites.

There is ambiguity in the wording of the US/UK Double Tax Treaty. It protects UK citizens living in the US regards the UK State Pension (of course, the UK has RBT), and it protects US citizens living in the UK regards US Social Security. Country of residence applies in both cases which I agree, is the accepted norm.

I tend to go by the statements of known competent, qualified US/UK tax advisors. Of those commenting, their response is always the same: _"a UK State Pension, paid to a US citizen resident in the UK, is taxable by the US."_ I have never seen a statement from a competent US/UK advisor saying it is not taxable by the US.

Anyone facing this situation could plead the accepted norm of most US Tax Treaties of taxation in the resident state only. I have never seen a post in which someone has been penalised for not declaring the UK State Pension. Article 17, para. 3 starts with: _"Paragraph 3 provides for exclusive residence-country taxation of social security benefits."_ Unfortunately, following wording does not support this for all situations.

If the US/UK Treaty is taken literally, then nowhere does it clearly define a UK State Pension not being taxable by the US for a US citizen resident in the UK.

My real opinion would be it is up to the US taxpayer, resident in the UK, to decide whether or not they feel they should declare the UK State Pension on a US return. If they wish to invoke the US/UK Treaty as reason for not declaring, they will need to establish where it says that. The pros who have commented thus far can't seem to find it.

If Nikki or David (both competent pros) happen to read this, I would really be interested in their opinions on this. Perhaps they could shed new light on the situation.


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## shylynn

Thank you all for answering this post, although there is definitely a difference of opinion on this issue. 

My circumstances are such that reporting the pension, as it is not that substantial, will make no difference in my tax liability. Therefore, rather then, as "theOAP" has stated, "If they wish to invoke the US/UK Treaty as reason for not declaring, they will need to establish where it says that," and, as a result of the discussion, I will be reporting the pension benefit. 

Personally I have no desire to put myself into the position where I have to explain anything to the IRS! 

We are fortunate to have such knowledgeable individuals on this forum who are willing to share their time and insight with us all. 

Thank you all again. 
It is always appreciated!


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