pk
Level 15
Level 15

Retirement tax questions

@Nidge ,  Under the  US-UK tax treaty there are various rules and conditions  that come into play as to whom can tax the  pension  See article  17.3.    This is pretty much in line  with most treaties  in that the  taxation is  allowed  to the distributing state.   

Note also that   under the "savings clause " each contracting state also can administer its  tax laws as if the  treaty was not in force.

 So assuming that UK is  already withholding taxes on your National Pension at distribution ( Taxed at Source ), the only practical way for you to  achieve  the non-taxability is  through " mitigation of double taxation" clause.  So   

1. Under  "Personal income"  or   "Wages and incomes" you choose  pensions/401/annuity etc. and report  the  "foreign pension/ Social Security " -- form 1099-R .   TurboTax may complain about no EIN.  Leave it blank or use an obviously  dummy such as 12-3456789.  Box -1 is the gross  amount received,  Box 2a would be the same as  Boxc-1 i.e. all taxable, Box 7 =7, normal distribution.   This should result in a taxable income ( your taxes will go up .

2. Now under   Deductions and Credits, choose  Foreign Tax Credit.  Choose Credit.  Turbo will now help you fill out  form 1116  -- Foreign source income is the  Gross  Foreign Pension,  Foreign Tax is the tax  you paid to the UK.  When all is said and done you should get ( depending on your total  world income ) most of US tax negated out.

3.There are other ways of achieving the same result

 

California does not recognize  Social Security  payments   except for Canada and Germany .  Thus  California will tax this UK Pension.

My references are below :

Special Circumstances | Taxes

2024 Publication 915 --- page 6

 

Is there more I can do for you ?