To answer questions 1 and 2, the UK pension is subject to tax in the UK and not the US. This applies even though it may not be actually taxed in the UK because of any pensions exclusions there.
Article 18 of the UNITED STATES-UNITED KINGDOM INCOME TAX CONVENTION states: "...any pension in consideration of past employment and an annuity paid to an individual who is resident of a Contracting State shall be taxed only in that State [the UK].."
For question #3, to report the pension in TurboTax, report the full amount of the pension under the Social Security income section and then report the same amount (as a negative amount) as other income on line 21 of your 1040. You will also need to attach a form 8843 (which is not supported by TurboTax) to a file by mail copy of your return.
Please follow these steps:
- On the Wages & Income screen, scroll down to Retirement Plans and Social Security.
- Click the Start/Revisit box next to Social Security (SSA-1099, RRB-1099)
- Click the Yes box on the screen, Did you receive Social Security or Railroad Retirement benefits in 2019?
- On the Tell us about the benefits you received screen, enter the amount of your foreign pension in Box 5.
- Back on the Wages & Income screen, scroll to Less Common Income.
- Click the Start/Revisit box next to Miscellaneous Income, 1099-A, 1099-C
- On the next screen, click the Start/Revisit box next to Other reportable income.
- Click the Yes box on the Any Other Taxable Income screen.
- On the next screen, enter the amount of your pension as a negative number. For Description enter “UK pension offset” (or something similar).
The negative number will appear on line 21 of your return and will negate the entry for your UK pension.
To exclude your UK pension from taxable income, you will have to include Form 8833 - Treaty-Based Return Position Disclosure. Unfortunately this form is not available in TurboTax. Download the form from the IRS website, complete it, and include it with your return. [You will have to mail in your return.]
