My wife and I are newly receiving a monthly pension income from a European country (deposited directly into our US bank account), including a sizable lump sum payment upfront for missed payments in the past. How do I report these on our US tax return?
Being a citizen or alien makes a difference. The country the the pension comes from also makes a difference. See this info on tax treaties. https://www.irs.gov/individuals/international-taxpayers/tax-treaties
Thanks for your reply. The pension is paid by the Swiss Government (Swiss Social Security) and we are both citizens of both the US and Switzerland. We qualify for US Social security independent of Swiss benefits and the Swiss pension is not taxed by Switzerland . So double taxation is not a concern. Therefore, as far as I can tell there are no tax treaties that apply to us, which means the income needs to be declared in TT as Miscellaneous Income/Other miscellaneous Income/Other Reportable Income. As a consequence it is fully taxed by the IRS as any other regular income but should not be taxed by the State of PA and local tax authorities. Does this all make sense ?
I'm afraid that once we start collecting US SS we will be subject to the Windfall Elimination Provision (Publication No. 05-10045) but that worry is for another day ...