To understand the full situation and how bad it is for us retiring here, over and above article 17 &18 you also need to consider the IRS document "The agreement between the US and United Kingdom document" (Windfall Agreement) and its sister document "Windfall Elimination".
Having consulted with several experts here is what I understand. Assumption - you are a US resident or Citizen.
- Income from UK Social Security from DWP and private pensions if not taxed in the UK, is taxable in the US as ordinary income.
- Most experts say don't bother to create 1092-R's to report, just include it as other income. The net result is the same, just the paper work is less onerous. Now more bad news....
- UK DWP and Private Pension is used to calculate a reduction in any eligible US SS payments. I'm not sure of the calculation and SS determine the exchange rate and will not tell you or vary it.
- This additional income will increase MAGI and so probably also increase IRMAA for Part B and Part D premiums.
- If the income is not declared and they find out they will claw back "over-payment" they made through SS.
So folks your UK DWP and Private Pensions are not only subject to US tax, but will reduce your SS payments and potentially increase Medicare Part B and D costs.
Anybody fancy going to a Tea party?
If any Tax Professional with experience in successful rebuttable of UK Pension taxation in the US would like to comment please do.
I would love to receive confirmation and save a bunch of money now I'm on fixed income.
