Form 8833 and UK pensions

All U.S. citizens and residents are subject to tax on their worldwide income.  This includes UK pensions. However, you can make an election to apply the US-UK Income Tax Treaty.  If you make a proper election on Form 8833, the 25% tax-free lump sum portion of your pension, formally known in the UK as the Pension Commencement Lump Sum (PCLS) that allows you to receive the first 25% tax-free.  The default rule is that it's 100% taxable in the U.S. unless and until you affirmatively elect to claim the benefits of the treaty.  A private employee pension would only be exempt in the US, if it was tax exempt in the UK.  

Thanks for your response I think you have answered the question on the 8833 and lump sum distribution. I still have a question on the monthly payments I received last year. Are these also covered in the 8833 and 1040 inputs or are they just defined as taxable income and not included in the treaty.

 

Are your private pension payments what you are referring to as the "monthly payments you received last year? Your UK private employee pension payments are possibly taxable income. 

 

If they are not taxable in the UK is the key.  Do you know if your private pension is taxable in the UK?  

 

If the UK taxed it, you may not be subject to double taxation due to tax treaties with the U.S. to prevent double-taxation. 

 

If you're not a UK resident, you don't usually pay UK tax on your pension. But you might have to pay tax in the country you live in. There are a few exceptions - for example, UK civil service pensions will always be taxed in the UK.

To report your foreign pension in TurboTax follow these steps:

1. Log in to your TurboTax account if it is not open.
2. Select the Wages & Income tab.
3. Scroll down to Less common income click Show more.
4. On the page Let's Work on Any Miscellaneous Income click on Other reportable income.
5. On the page Any Other Taxable Income?  select yes.
6. On the page, Other Taxable Income enter Foreign Pension for the description and the amount.
7. Select continue and answer No on the next page.

Click here for additional information on the Taxation of Foreign Pensions.

Thanks again your answers I did some further checking, and both my UK government pension and private pension have not been taxed in the UK so I plan to include them as additional income not included in my W2 and 1099-

re "If you make a proper election on Form 8833, the 25% tax-free lump sum portion of your pension, formally known in the UK as the Pension Commencement Lump Sum (PCLS) that allows you to receive the first 25% tax-free.  The default rule is that it's 100% taxable in the U.S. unless and until you affirmatively elect to claim the benefits of the treaty."

I took the 25% PCLS and it is free of UK taxes, even if one resided in the UK.  I'm a US citizen and  reside in the US. 

I need assistance to properly complete form 8833. I'm willing to pay for the assistance, however as TT doesn't provide form 8833 I believe TT cannot provide this assistance. Is that true? 

1 Enter the specific treaty position relied on:
   a Treaty country: UK
   b Article(s) 17(1)(b)

However what to enter in boxes 2,4,5 and suggested text for box 6?

 

This is beyond   TT  level 1 support and TT level 1 previously suggested contacting SprinTax however after reaching out to SprinTax found out  they only deal with 1040NR filers which is not applicable to me.

Thank you

Update.  I was just made aware of an IRS issued informational letter in written in 2008 basically saying Article 17 doesn't apply and the UK PCLS remains taxable. I did reach out to a tax attorney but the attorney's position was there  was too much liability and in fact they refunded their consultation fee.

https://www.irs.gov/pub/irs-wd/08-0024.pdf

 

No, Article 17 of the tax treaty says,  "a lump-sum payment derived from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State" This means this lump-sum pension can only be taxed in the UK. 

 

US/UK Tax Treaty

From what I’ve read “lump-sum” is not well defined in the US and open to interpretation.  In the US the 25% is can be interpreted as a partial distribution not a lump-sum whereas lump-sum would be 100%. There are a online blogs arguing both sides of the coin.

Agreed, the irs letter is an interpretation not a ruling, however as it’s close to tax day I’m not pursuing the treaty now but may file an amended return later. I would still need assistance completing form 8833 as the tax attorney was not interested in helping me - “too much liability”

My best suggestion is to view this video.  It's a 17-minute video but should give you great groundwork for completing your 8833 form. Here's another great example to look at to get an idea of how to fill it out.