@Nidge , Under the US-UK tax treaty there are various rules and conditions that come into play as to whom can tax the pension See article 17.3. This is pretty much in line with most treaties in that the taxation is allowed to the distributing state.
Note also that under the "savings clause " each contracting state also can administer its tax laws as if the treaty was not in force.
So assuming that UK is already withholding taxes on your National Pension at distribution ( Taxed at Source ), the only practical way for you to achieve the non-taxability is through " mitigation of double taxation" clause. So
1. Under "Personal income" or "Wages and incomes" you choose pensions/401/annuity etc. and report the "foreign pension/ Social Security " -- form 1099-R . TurboTax may complain about no EIN. Leave it blank or use an obviously dummy such as 12-3456789. Box -1 is the gross amount received, Box 2a would be the same as Boxc-1 i.e. all taxable, Box 7 =7, normal distribution. This should result in a taxable income ( your taxes will go up .
2. Now under Deductions and Credits, choose Foreign Tax Credit. Choose Credit. Turbo will now help you fill out form 1116 -- Foreign source income is the Gross Foreign Pension, Foreign Tax is the tax you paid to the UK. When all is said and done you should get ( depending on your total world income ) most of US tax negated out.
3.There are other ways of achieving the same result
California does not recognize Social Security payments except for Canada and Germany . Thus California will tax this UK Pension.
My references are below :
Special Circumstances | Taxes
2024 Publication 915 --- page 6
Is there more I can do for you ?
