How can I make the taxable amount of Social Security zero? Due to US-UK tax treaty.

[IreneS]

To make your Social Security benefits nontaxable on your return, enter the benefits received and then subtract the taxable amount from your income.  To do this please follow these steps:

1. Enter the Social Security benefits exactly as it appears on your SSA-1099. 
2. On the Wages & Income tab, scroll to Less Common Income.
3. Click the Start/Update button beside Miscellaneous Income, 1099-A, 1099-C
4. Click the button beside Other Reportable Income (at the bottom of the list).
5. Click the Yes box on the Any Other Taxable Income? page.
6. On the Other Taxable Income page, enter this in the description box:  IRS PUB 915 - SS Income Not Taxable.
7. Enter the amount of taxable Social Security as a negative number.
8. Click Continue when done.
   

To look at the Form 1040 to confirm that amount has been deducted on Line 21 (and to double check the taxable social security amount), please follow the instructions below.

You can preview your 1040 by following these steps:

1. While in your return, click Tax Tools (in the black bar at the left of the screen) > Tools >
   View Tax Summary (under Other helpful links).
2. Click on the Preview my 1040 link in the black bar at the left of the Tax Summary.
   
   • line 5a is your total Social Security benefits
   • line 5b is the taxable amount.
   • line 21 shows the subtraction for the Social Security

[timdf]

Hi IreneS

I'm just completing my taxes for 2019 and reside in the UK thus my social secuirty payments should be be taxed by the IRS - I've followed this guide as best I can (entering my total SS income as I guess it's all taxable ?) and it results in box 5b being set to zero (as I would expect) but it also reduces my total income by the same amount .  Schedule 1 Part 1 line 8 shows the negative amount of social security wiping out my other UK government pension I receive.

It doesn't appear in line 21 (in fact the overview doesn't show line 21 anyway)  - any idea where I've messed up ?

Regards Tim

[BillM223]

"I'm just completing my taxes for 2019 and reside in the UK thus my social secuirty payments should be be taxed by the IRS -"

Did you mean to write ""should NOT be taxed"? As noted above, US citizens who are residing in the UK do not pay US tax on their SS (because I assume the tax treaty lets the UK tax it).

And if you follow Irene's instructions (the only way for Online users to do it), your SS benefits SHOULD BE in line 5b. 

And the negative amount for your SS should appear on line 8 on Schedule 1 (1040). Note that this is for 2019 - Other Income has moved around in the last three years.

Finally, you can see page 1 of your 1040 and its schedules by doing one extra step in looking at the summary. Do the following:

• Click on Tax Tools (on the left)
• Click on Tools (just below it)
• Click on View tax Summary (in the center)
• Click on Preview my 1040 (back on the left.

Now you can see the entire 1040.

[timdf]

Hi Bill,

thanks for the reply and spotting my typo - correct my SS benefit should not be taxed !

I've done the SS tax calcuation manuall and it agrres with TT ie on a benefit of $15564  taxable amount is $5211.

Following Irene's guidance and checking  Schedule 1 line 8 is does indeed show $-5211 however line 5b shows $ 2606 while line 5 a shows $15564.

Before I folowed Irenes guide line 5b showed $5211.

I'm not convinced I've got this quite right as it means it doubles my tax refund, basically I get back all the USD tax I had paid during the year  - this is because subtracting my SS income takes me below the MFJ $24400 and thus results in no tax due.

Line 7a on 1040 has gone negative (-5925) as the $15564 is greater than other income sources (UK government employment pension).

Last year I had a CPA do my taxes and the numbers were essentially the same but taxable income was $8000 with $326 payable due to UK tax credits. 

The CPA set line 5b to zero but did not add any negative income to offset the SS income.  My adding it as a negative income reduces my overall line income on line 7 of 1040 as line 22 schedule 1 goes negative as a result.

Basic question is do I enter $15564 or taxable amount of $5211 negative into other income ?

Entering $15564 makes box 5b go to zero and tax refund remains the same ie I get all my USD payments back.

Apologies if I've misuderstood something but I want to make sure I get this correct !

Regards Tim

[rudins]

An unofficial way I have used with no problem (so far) is to enter the SS income on the form, then force an override to enter the taxable amount as 0.  Turbotax then won't let you e-file, so I print it out, handwrite "Tax Treaty" in a space nearby and file by mail.

[timdf]

thanks for the tip - I had heard of that before but really wanted a 'proper fix' so I can e file.

Might have to go that route as a last resort, but in the meantime I'm working with a TurboTax advisor to try and fix it.

[BillM223]

"Following Irene's guidance and checking  Schedule 1 line 8 is does indeed show $-5211 however line 5b shows $ 2606 while line 5 a shows $15564."

Thank you for asking this. The line 8 amount (Other income) should be equal to your taxable Social Security benefits, which is line 5b.

What you want is for the SS taxable income to have no effect on your Adjusted Gross Income.

For line 5b to change may be because you have changed your non-SS income; as you know, not all of your SS benefits are taxable, but the more you have "outside" income (i.e., other than SS), the more of the SS benefits become taxable.

So, are you able to get the return in a place where lines 5b and 8 are the mirror opposites (positive and negative, that is)? If so, this part of your project is done.

"The CPA set line 5b to zero but did not add any negative income to offset the SS income. " This would be perfectly fine if you were doing your return on paper. With TurboTax, we just have a different way of getting to the same goal.

[timdf]

Hi Bill

thanks again for taking the time to reply and you clearly understand the problem.

No matter what I do I cannot get line 5b and 8 to be mirror opposites so I've upgraded to TT live chat and an advisor is looking into the problem as he couldn't do it either.

I suspect 'paper filing' might be in my future which is sad as the reason I signed up for TT was so I could do it all on line and e file !

Regards Tim

[BillM223]

Sorry. You will need to recursively change the amount of negative Other Income until it matches (within a dollar at the worst) the line 5b amount.

I know this is a pain, but the problem is that the change in your taxable SS benefits is not linear with the change in your Other Income.

Still, if you would add a negative amount, take a snapshot of the resulting line 5b and 7a (which I hope has the same value as line 8 on Schedule 1, although it might not), note the change, then adjust the Other Income to be closer to the 5b amount, take another snapshot - it shouldn't take too long before you figure out an exact match.

Good luck!

[timdf]

Hi Bill,

thanks for the tip - but it doesn't seem to want to work as the amount needed to be entered to zero out 5b takes me below  $24,400 agi and no tax due at all.

I've spoken on the phone to a TT advisor and he seemed to think my SS income is taxable in the US despite me being in the UK and the tax treaty etc etc.

I also ran into another brick wall when I tried to pay - I don't have a US billing address (but do have a US Wells Fargo debit card registered to my UK address), so couldn't pay that way nor can I pay from my refund as I can't e file unless give up on this social security tax business.

Kind of at my wits end and may have to complete all the forms myself and mail them in - unless you have any ideas how to do this ?  Want to take the job on ? 🙂

Regards Tim

[BillM223]

"as the amount needed to be entered to zero out 5b takes me below  $24,400 agi and no tax due at all." Hmmmn, I don't see why this is a problem (unless you have trouble seeing the 1040 preview if the tax due is zero).

Remind me why this is a problem.

[timdf]

Hi Bill,

thanks for the quick reply, based on last years tax filing by a CPA who simply over wrote 5b to zero left me with a small tax bill of $315.

Using turbo tax with the same numbers but adding in a negative other income of -$15565 (to cancel out SS income)  takes me below $24400 AGI and I get a refund of $1050 (basically the tax I had pre-paid on my 401k disburements).

So I figure something is wrong if I go from tax owed to tax refund !

If I don't overwrite 5b  I get a refund due of $414 but clearly should be higher as I'm being taxed on my SS benefit.

Regards Tim

[BillM223]

"-$15565"

If I remember correctly, this is your gross SS distribution, not the taxable portion.

What appears in 5b is only the taxable portion. That's what we want to end up on line 8 (on Schedule 1, it's line 7a on the 1040 itself).

Yes, if you enter a negative Other Income, this will change the taxable amount on line 5b. You will need to make new entries for Other Income, until the gap closes and the line 5b positive amount and the line 8 negative amount are the same or at the most $1 off.

It won't take too many tries before you get a feel for how much to change the negative amount to get the result you want.

Does this make sense?

[timdf]

Hi Bill,

many thanks for your in replying to what is perhaps a simple question.  Everything you say makes good sense.

As it turns out I've given up on TT having spent way too much time trying to make it work plus not having  a US billing address for paying was the final straw.

So I've taken the plunge and filled out the relevant forms manually cross checking with a spread sheet I built and tested with last years numbers - surprisingly everything seems to add up and a refund of $741 is due.

Only remaining problem is finding and completing a work sheet to explain how the foreign tax credit / carry over etc was figured.  So far I've drawn a blank on these work sheets.

Regards Tim