@pk
If there is a tax treaty between the US and Poland, and if this is a social benefit retirement scheme similar to US Social Security, the general rule is that you pay taxes on this income in Poland according to Polish law, and you do not pay taxes on this income in the US. (You also can't get an offsetting credit for taxes paid to Poland, since the income is not taxable in the US, so you don't even use the 1116 form.)
You must still report any other world-wide income on your US tax return, such as investments in Poland, and you might be able to claim an offsetting credit for that.
If you do not want to follow the treaty, then you would pay taxes in US, and you might be able to claim an offsetting credit. But I don't see what the benefit would be of this strategy.
Our advice is that you should declare the Polish social security income on your US tax return and then add an adjustment to make it non-taxable. There is a correct way to do this and a "good enough" way. The correct procedure would be to enter an item of "miscellaneous income" in the amount of the foreign social security. This would go on Schedule 1 line 8z with a notation like "Poland social security" or whatever the name. Then, enter an item of negative income to offset the Poland social security. This goes on schedule 1 line 24z, you can give a reason like "Poland social security exempt by tax treaty."
However, you can only access schedule 1 line 24z by making a manual entry using Forms mode of Turbotax installed on your own computer from a CD or download (the desktop version).
If you are using Turbotax online, you have to enter both the miscellaneous income and the negative offset in the same place, "other miscellaneous income". This places both the income and the offset on line 8z. This is not technically correct, but seems to be an acceptable answer and has been recommended in the past by Turbotax employees.
