Is my UK state pension (social security) exempt from US taxes because of the US-UK tax treaty Article 17?

[DS30 · Accepted solution]

Yes - Article 17 of the US-UK tax treaty related to UK social security payments and would be the Article cited to exempt your UK state pension from being double taxed in the US.

[benjaminl]

Does a pension that is not taxable under article 17 still have to be reported and if so how is it reported?

[Adrian S]

Not everyone can escape US taxation on UK pensions.

Note that IRS Publication 901, page 33, states that "Pensions paid by, or funds created by, the United Kingdom...........are exempt from US income tax unless the recipient is both a resident and a citizen of the United States".

Article 17 of the UK - USA Tax Treaty, section 3, is relevant, 

"3. Notwithstanding the provisions of paragraph 1 of this article, payments made by a Contracting State (in this case, say UK) under the provisions of the social security or similar legislation of that State (UK) to a resident of the other Contracting State (USA) shall be taxable only in that other State (USA).

As a resident and dual UK/US citizen I cannot find a way to escape taxation on my UK pension.

[US_UK_Taxes]

My UK Pension is small and falls below what the UK considers taxable.

[Adrian S]

But you may still have to pay US taxes on that amount.

[DaveD_SanDiego]

Is it possible to get clarification on this ? The whole purpose of the Tax Treaty between the US and the UK is to avoid paying double tax. I have a small private pension in the UK and paid approx $2,000 UK tax on this pension. Do I now have to declare this on my 1040 as foreign income and pay additional tax in the USA? Doesn't Article 17, Section 1 para b) apply?

"a) Pensions and other similar remuneration beneficially owned by a resident of a
Contracting State shall be taxable only in that State.
b) Notwithstanding sub-paragraph a) of this paragraph, the amount of any such
pension or remuneration paid from a pension scheme established in the other Contracting State [my case:UK]
that would be exempt from taxation in that other State if the beneficial owner were a resident
thereof shall be exempt from taxation in the first-mentioned State. [in my case the USA]"

[RobertB4444]

@DaveD_SanDiego you're right!  The treaty is designed to prevent double taxation. 

In the case of year round residents and those who have become US citizens, it is supposed to do that by including your pension in income but deducting the taxes you paid to the UK.  You will enter your UK pension in the same section as the social security benefits.  Then you will enter the total amount of the foreign taxes that you paid to your country of origin into the Other Taxes Paid section.

If you are a part year or temporary resident of the US you can file form 8833 with your tax return to exclude your pension from income under treaty.  You would enter the income into the section for social security as mentioned above and then report the exact same amount as a negative in the 'Other Income' Section.  Then you would attach form 8833 and mail the return in (TurboTax does not support form 8833).

This article has a lot more on this extremely complicated and convoluted issue, and this article by TurboTax has step by step instructions for entering both if that is necessary.