UK pensions for US citizen

[Johnb_Tampa]

I am a US citizen - I have a UK military pension and a UK employee pension paid directly in the UK.  I am paying a small amount of UK taxes on the pension because they are slightly over my allowance. I also received a tax-free pension lump sum.  Under the UK/US tax treaty article 17 I understand that the pension payments are not taxable in the US so I report the pension payments on 1040 and then add a negative entry to subtract them.  Is this correct? The tax-free lump sum would not be reported.  I also saw from a Turbotax answer to supply a form 8833 to explain the negative entry.  Is this correct?

[ThomasM125]

It is correct to report the income and then a negative entry to "other income" to reverse it. There are some exceptions to having to include form 8833, you can find them on page three of the instructions to form 8833 as follows:

irs.gov/pub/irs-pdf/f8833.pdf

[LinaJ2020]

Yes, it is correct that you would enter a negative entry under Other Reportable Income section. 

Tax treaty-related matters are out of scope for our advice.  Generally, the UK pension is taxable to the US. You would not file the Form 8833 Treaty-Based Return Position Disclosure  However, some foreign pension might not be taxable if it is covered under any tax treaties between the foreign country and the United States.  As it is out of our scope for advice, you are advised to consult a specialized professional for verification. 

If the UK pension is not taxable to you,

• report your full amount as instructed below in the 1099R section. Then enter the treaty exempt amount as negative amount (e.g. -5000) under Other Reportable Income as instructed below.
• Download and fill in a Form 8833 from IRS to claim an exception.  https://www.irs.gov/pub/irs-pdf/f8833.pdf
• You cannot e-file.  You may still use the TurboTax program to prepare all your tax forms, but you would need to print them out and submit by mail along with form 8833. 

If it is taxable, to enter the UK pension, you will need to create a substitute form 1099-R. 

Here are the steps:

In TurboTax online,

• Sign in to your account and select Pick up where you left off
• At the right upper corner, type in 1099r, then Enter
• Select Jump to 1099r
• Follow prompts
• Next screen, Choose your bank or brokerage, select I'll type it in myself
• Follow prompts.  On the screen  Tell us if any of these uncommon situations apply 
• Check the box I need to prepare a substitute 1099-R and follow the prompts.  

As to the Federal ID, UK pensions often do not have the ID number.  Please try entering nine 9s.  If electronic errors occur due to 1099-R data entry, enter the pension under Miscellaneous income, see instructions below. As long as the IRS has the pension reported and included in total income, it is not problematic. 

• To your left, select Federal
• From the top, select Wages and Income
• Scroll down to last section -Less Common Income -select  Miscellaneous Income, 1099-A, 1099-C- Start 
• Next screen, scroll down to Other Reportable Income- Start
• Follow prompts

 For more information, see http://www.irs.gov/Businesses/The-Taxation-of-Foreign-Pension-and-Annuity-Distributions

@Johnb_Tampa

[Wonkeysmoker]

I have some additional questions.

When filling out the 1099R it asks for the type of distribution? What should i enter for a pension lump sum? It asks for federal and state taxes paid, which i clearly did not pay. But i did pay taxes in the UK on this lump sum, do i enter those elsewhere? Or am i being taxes twice?

[RobertB4444]

Tax treaty related matters are out of scope for our advice.

For the type of distribution just enter that it's a regular distribution.

You will enter the foreign taxes paid into a different section (under deductions and credits) and you will get a dollar for dollar credit for those taxes.  

@Wonkeysmoker