Thank you for asking this question. Please note from the outset that this answer does not address the tax treatment of your (foreign) Social Security or pension income, from the perspective of any other country aside from the United States. It also does not consider any tax treaty provisions that may be in effect between the US and the other country. In other words, the scope of this answer is restricted to the US tax treatment and reporting of these items only. Any taxes due or forms required by the other country involved are beyond the purview of this response.
That said, there are some good existing answers on this very topic (foreign pension income, that is), on a few of the other TurboTax AnswerXchange threads. They provide mechanical instructions for entering foreign pension income into TurboTax (and thus onto a US tax return). Here are those links, so that you can read them for yourself:
https://ttlc.intuit.com/questions/3175138
https://ttlc.intuit.com/questions/3642520
https://ttlc.intuit.com/questions/3833087
Essentially those answers propose one of two different solutions. Under one method you can input a foreign pension or non-US Social
Security payments into TurboTax (and
thus report them on a US tax return), by creating a "substitute" Form
1099-R. It does not matter whether the income was a one-time lump sum
payment, or an annual (ongoing) pension stream of monthly payments. It
still gets reported, and
taxed, the same.
Alternatively (and also preferably as well, because it is easier to do), you can enter the foreign pension income on Form 1040, Line 21 as "other income" or "foreign pension." If you choose this way, then you won't have to create a substitute Form1099-R, by filing Form 4852.
However, the end tax result (in terms
of United States tax rate and amount assessed) will be identical under both methods. You can enter a Line 21 amount in TurboTax by using the following pathway Federal Taxes -> Wages & Income -> Less Common Income -> Visit All and then proceed through the interview until you find an appropriate place to declare the foreign income and type in an accompanying description.
I followed your directions and input my foreign Social Security income in as Foreign earned income, as that was the only option. I cannot find a place anywhere to explain what the earnings are from, neither in the TurboTax step by step forms or on the IRS forms themselves. Can you explain where I should explain this income?
There must be millions of people in the US that have to declare this income and it seems there would be a more appropriate way.
No that is not the only option to enter the income. Here is a better way to enter.
This is all very helpful. Can anyone tell me whether foreign pension income needs to be reported (and is taxable) on the PA tax return (for residents of Pennsylvania)? Thanks, Bernhard
Pennsylvania usually allows you to exclude pension income from being taxable. I'm sure @TomD8 can help clarify this for you, though.
@Bernhard --
Under Pennsylvania law, payments commonly recognized as old age or retirement benefits are not subject to tax. In order to be considered exempt retirement benefits, the payments must come from an eligible Pennsylvania retirement plan and must be paid to persons retired from service after reaching a specific age or after a stated period of employment.
Scroll down to "Criteria for A Plan to Qualify as an Eligible Pennsylvania Retirement Plan" in this reference for more details:
I suggest you contact a local tax professional if you're unsure whether or not your foreign pension income qualifies under these rules.
Thank you, TomD*.
I am positive that all four of the below quoted eligibility criteria apply to our situation. There is even an explicit statement that lump sum payment do not disqualify. I don't think a tax advisor could read this in any other way - so again, thank you!
"A plan is considered an eligible Pennsylvania retirement plan if, at a minimum, the plan has four characteristics:
Hi Dave, could you be kind enough to confirm if a Foreign Social Security Pension must be reported in Form 1040 SR line 8 “Other incomes from Schedule 1, line 10”, and in such Schedule in line 8z? . Thanks in advance .
@Kosetife Yes, you are correct. I sent a response to @misterno123. Here is what I mentioned.
"Kosetife is correct in what he/she says. I could not find any information that was contrary to the "savings clause". Here is how to report.
Dave , before 2018 taxable foreign social security pensions were reported in Form 1040 line 21. After the 2018 Form revision, those Pensions are reported in line 8 Other income from Schedule 1 line 10, and in such Schedule in line 8z. I don’t have doubt now of it.
My query is if by following the steps you kindly describe in your message related to @@misterno123 the system will take me to enter the information in Form 1040 line 8 and Schedule 1 line 8z automatically. Thanks in advance .
Yes, the steps given by DaveF will place the income on line 8z on Schedule1 and will transfer to Line 8 1040.
Is foreign Social Security income subject to the same Federal taxation limits (85 percent max) as U.S. Social Security income? Taxpayer is a U.S Citizen.
Also, if so, where is the most appropriate place to report this income?
No, foreign social security is not subject to the same federal taxation limits as US Social Security. This is entered as other income and is taxed at your tax rate that is based on your filing status and other income. The steps given by DaveF will let you know how to enter this income.
Its the answer I anticipated. Thanks for your follow up.
I followed the 6 steps and reported the foreign soc sec amounts (for two countries) and gave explanations of currency exchange rates used, i.e. IRS yearly average exchange rates. This year my taxes increased about $600. The amounts from this year and last year are basically the same. I does not seem that the soc sec is taxed differently than regular income when filing them in this spot. Last year I filled out the 1099R forms as well, but had to print them and then fill out addresses and organization numbers by hand afterwards, as they did not fit. Not an option this year and the Turbo Tax page refuses to "Continue" if the numbers and addresses does not fit into the spaces allowed. Still hoping to find another way.
Instead of reporting these as 1099R's, I would suggest reporting this as other income so that the income is reported correctly on line 8Z of Schedule 1 and the 1040. Here is how to report.
To report:
As far as the increase in your taxes, there may have been a change in the exchange rate between the previous year and this year.
@Hg2164
Any links to the same subject matter for California? Specifically, I would like to know if or how foreign pension from Europe needs to be reported in California and also if there are any exceptions. Thank you in advance.
My wife and I are both over 70 and live in Maryland full-time. She started receiving a disability pension from the Israeli police. They don't send us anything like a 1099-R. How do we report this? Is any part tax exempt, either federal or Maryland? Thanks.
Yes, your wife can exclude her disability pension income from Israeli police for any personal injury or sickness resulting from the foreign government services. Please see IRS Publication 525 - Section Military and Government Disability Pensions for more information.
Because the disability pension income is not included in the federal AGI and is not treated as an addition to the income per Maryland Form 502 instructions, you don't need to report the income on the Maryland tax return. Please see Maryland Form 502 instructions - additions to income section for more information.