I earned retirement lump sum from a company in Japan and I paid taxes to Japan. I would like to know how to input this earning on turbotax and how to reduce my tax in US?

[CherieKawaii]

I lived in US for 365 days in 2020. I worked long years for Japanese company in Japan and worked several years as expat in US. I left the company in 2020 and I got retirement lump sum. I did not live in or visit Japan in 2020, but I paid withholding tax to Japan, for the income.
Could someone tell me how to input this income in turbotax to maximize my benefit?

[ToddL99]

You have two options to report a foreign pension (including a lump sum payment).

( The end tax result (in terms of United States tax rate and amount assessed) will be identical under both methods).

Option 1 (Best choice) : You can enter the foreign pension income on Form 1040, Line 8 as "other income" or "foreign pension."   

• You won't need a  Payer ID, state or zip code with this approach.   
• The IRS wants the pension reported as income - unless your pension receives special tax treatment, it is perfectly OK to report it as Miscellaneous Income.  
• To make entries on Line 8, go to the Other Reportable Income interview, the very last interview in Wages and Income (Federal Taxes tab > Wages & Income  > Less Common Income > Miscellaneous Income).  
• In TurboTax Online, enter "other reportable income" in the Search Box and then select "Jump to Other Reportable Income".   
• If you choose this way, then you won't have to create a substitute Form1099-R, by filing Form 4852 and you won't encounter e-file errors over the Payer ID.   

Option 2:  Prepare a Substitute Form 1099-R and a Form 4852 to report that foreign pension on your tax return.  

• In the Retirement Income interview for Pension Plans (Form 1099-R), check "I need to prepare a substitute Form 1099-R" and follow the instructions in the interview.  

To report the amount of foreign taxes that you paid, follow these steps:

• Open up your tax return in Turbotax
• Click pick up where I left off
• Select Federal Taxes at the top of your screen
• Select Deductions and Credits
• Scroll down the page to the section titled Estimates and Other Taxes Paid and click Show More
• Select Start/Revisit to the right of the line Foreign Taxes
• Go through this section and enter the foreign taxes that you paid.

[CherieKawaii]

Thank you very much for the answer!! It is very helpful for me.  I would like to ask you the detail of how to go through "Foreign Tax Credit" section.

Here is what I selected, but I could not input the amount of my retirement lump sum.

1. Select [Federal Taxes] > [Deductions and Credits] > [Foreign Tax Credit (in Estimates and Other Taxes Paid)]
2. Select [I paid foreign taxes on income I earned while working in another country.]
3. Select [Take a credit]  (Displayed question is "Do You Want the Deduction or the Credit?") I am not sure this is a good choice or not, though.
4. Displayed question is "Where Did You Receive Dividend Income From?", but I what I want to input is my retirement lump sum, not dividend. So I got stuck here.

I am sorry for my awkward English, by the way.

[LinaJ2020]

Not sure why it asked you about dividend income.  Maybe you have entered a 1099-DIV?  Here is another way to enter a foreign tax credit:

If you have paid taxes to both Japan and the US tax authorities, the IRS allows you to claim a foreign tax credit on your US tax return.  To claim this foreign tax credit, you would need to file a Form 1116 Foreign Tax Credit. 

Here are the steps: 

• Open up your TurboTax account and select Pick up where you left off
• At the right upper corner, in the search box, type in "foreign tax credit" and Enter
• Select Jump to foreign tax credit
• Follow prompts
• Until you see screen " Choose the Income Type " , select your type ( Click on Income Category Type to see details)
• See image below

[CherieKawaii]

Hi, Thank you for the answer. I still cannot input information about foreign tax of my retirement lump sum I paid in Japan, to reduce my tax. Here are screen captures of "Foreign Tax Credit" wizard. 

1. Search "foreign tax credit" and jump

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2. Click "Continue".

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3.  Click "Continue" again

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4.  Click "Take a credit"

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5.  Click continue

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6.  Select "Japan" and Click "Continue"

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7.  Wizard mentions about Form 1099-DIV. I cannot input information about my foreign tax of retirement lump sum.

[MarilynG1]

Don't enter your Country on the Dividends page for a Foreign Tax Credit.

Continue until you get to a screen where you can choose the Type of Foreign Income you received (screenshot).

Choose 'Lump Sum Distribution'.

Click this link for more info on Form 1116. 

[CherieKawaii]

Thank you for the reply. I tried to click "continue" without selecting my country on the page "Where Did You Receive Dividend Income From?" was shown, but it showed "Please select a country" and I could not move on to the next. I could not meet the screen showing "Choose the income type" that you mentioned.

If you know any ways to reach to the page, please let me know.

[MarilynG1 · Accepted solution]

@CherieKawaii If you reported a 1099-DIV in your return with a Foreign Tax paid, you will need to review that info first before being able to enter Foreign Tax on a different type of income.

If you did not enter a 1099-DIV, try choosing a country, then on the next page it says 'Report Income' or 'Done'.  Choose 'Done' and on the next page it says 'do you want to continue reporting income...' say NO.

The next screen should say 'Completing Forms 1116'.  Choose Continue, then Continue again, and you should be on the screen to select your Foreign Income Type. 

Click this link for more info on Foreign Tax Credit.