topic Filing the US tax for parents earning retirement income and paying taxes in India in Retirement tax questions

Filing the US tax for parents earning retirement income and paying taxes in India

Anonymous — Sun, 05 Apr 2020 17:43:04 GMT

Hi,

My dad worked and retired in India a while back. He is getting his retirement income in India and is paying his taxes there for that income. He got his permanent residency in the United States last year. He is going to file his tax in the U.S. for the first time now (for 2019). Questions:

1. Where should he report his retirement income and the taxes paid in TurboTax? Does he report his retirement income under "Foreign Earned Income and Exclusion" under the "Less Common Income" section?

2. Does he report the taxes paid in India under the foreign tax credit deduction section?

3. Is entering that information and filing the tax good enough to get the Premium Tax Credit (PTC) for the health insurance marketplace?

Your help is greatly appreciated.

Thank you.

Re: Filing the US tax for parents earning retirement income and paying taxes in India

KarenJ2 — Sun, 05 Apr 2020 18:37:30 GMT

1. You would not report the income under foreign earned income exclusion as that is just for foreign wages.

You would not use the foreign paid tax credit in your case. Pension from India is taxable either in the US or in India, but not in both countries. This is based on the tax treaty between the US and India. You would have to claim the tax treaty exemption in the country where the pension would not be taxable.

US/India Tax Treaty

You would report the pension on form 4852, substitute for form 1099R.
If your pension is taxable in the US, you enter the full amount as taxable amount.
If your pension should be taxable only in India, you would then enter Zero as the taxable amount ad write "Us India tax treaty Article XX" as explanation.

2. He would not need to report foreign tax credit as his pension income is only taxed in the US or India but not both

3.The premium tax credit program uses the federal poverty line as a basis for income range for credit eligibility. The range is 100 percent to 400 percent of the federal poverty line amount for the size of your family for the current tax year. For example, an individual earning between $12,490 and $49,960 in 2019 meets income criteria to qualify, while a family of four qualifies with household earnings between $25,750 and $103,000 (as of publication). Even if your income indicates eligibility, you must meet the other qualification criteria as well.

What is the Premium Tax Credit? I do not know

IRS Eligibility for the Premium Tax Credit

Re: Filing the US tax for parents earning retirement income and paying taxes in India

Anonymous — Sun, 05 Apr 2020 23:41:39 GMT

Thanks Karen. Should I search for form 4852 in TurboTax and fill that?

Re: Filing the US tax for parents earning retirement income and paying taxes in India

KarenJ2 — Mon, 06 Apr 2020 14:48:06 GMT

Once the return is open:

Click on Federal
Click on Wages & Income
Scroll down to Retirement Plans and Social Security
Click on Visit all if available on 1099-R, IRAs, 401(k), early withdrawals
When you see screen Tell US Which 1099-R You Have, click on I need to prepare a substitute 1099-R

Re: Filing the US tax for parents earning retirement income and paying taxes in India

Anonymous — Mon, 06 Apr 2020 16:03:46 GMT

Great. Thank you very much. Appreciate your help on this.

Re: Filing the US tax for parents earning retirement income and paying taxes in India

Anonymous — Wed, 08 Apr 2020 02:52:48 GMT

I followed the steps you mentioned, TurboTax said "Fill out the form 1099-R on the next screen as accurately as possible. Later we will have you complete the required explanation statement on form 4852". I went to the next screen and entered the payer information and Gross distribution on 1099-R and now it's not letting me go further without selecting a code for Box 7 (picture below). Any help is appreciated. Thanks.

Re: Filing the US tax for parents earning retirement income and paying taxes in India

KarenJ2 — Wed, 08 Apr 2020 12:52:59 GMT

Box 7 would be code 7 normal distribution.

Re: Filing the US tax for parents earning retirement income and paying taxes in India

Anonymous — Thu, 09 Apr 2020 03:03:40 GMT

Thank you. I got past that and now I am hitting another road block. It's asking for Payer's I.D. It says "The state of Illinois requires an entry in this field in order to complete the state tax return". I am still in federal tax, but I will be filing the state tax also after federal. I tried giving the PAN number which is the ID in India and it's alphanumeric whereas it's expecting a numeric value for Payer's ID. It didn't take that. It didn't take 0 either. Any suggestions?

Re: Filing the US tax for parents earning retirement income and paying taxes in India

KarenJ2 — Thu, 09 Apr 2020 13:05:38 GMT

You can print and mail the Illinois state return and see if you can e-file the federal return. When you are doing the review, you need to ignore the review issue regarding the state Payer's ID.

I know Illinois exempts nearly all retirement income however only for qualified plans.If he is receiving retirement income only from India, it would not be a qualified plan.

The other option is to enter the income as other miscellaneous income:

Open your return in TurboTax
Click on Wages & Income
Scroll down to All Income
Scroll down to Less Common Income
Scroll down to Miscellaneous Income, 1099-A, 1099-C
Click start
Scroll down to Other reportable income
Answer yes
Enter retirement income description and amount

Hope this works for you.

Re: Filing the US tax for parents earning retirement income and paying taxes in India

Anonymous — Thu, 09 Apr 2020 13:19:45 GMT

Thank you, I will look into those options. Appreciate your help on this.

Re: Filing the US tax for parents earning retirement income and paying taxes in India

bkiran79 — Fri, 18 Dec 2020 13:51:30 GMT

Karen J2, you have been very patient in your explanation to this problem. i had a question do i follow the above steps to file for my dad (is having a similar situation) in the US after he has filed taxes in india ?

Re: Filing the US tax for parents earning retirement income and paying taxes in India

PBR2 — Mon, 18 Apr 2022 13:37:55 GMT

If I use the other income route, where do I enter tax credit so the income from India is not taxed in US again?

Re: Filing the US tax for parents earning retirement income and paying taxes in India

DaveF1006 — Mon, 18 Apr 2022 19:51:25 GMT

Yes, claim the Foreign Tax Credit by going to, Go to wages and income>deductions and credits>estimates and other taxes paid>foreign taxes.

@PBR2

Re: Filing the US tax for parents earning retirement income and paying taxes in India

Anonymous — Tue, 19 Apr 2022 13:25:43 GMT

For my parents and in-laws, we file using 1099R, then select the option that says "I need to file a substitute 1099R" and use form 4852 to explain that the pension is already taxed in Indian and due to the India-US tax treaty, they are not required to pay the tax here. I convert the pension amount from Indian rupees to USD using the current conversion rate and enter it in box 1 Gross distributions and enter 0 in the taxable amount and select code 7 for box 7.

Re: Filing the US tax for parents earning retirement income and paying taxes in India

bkiran79 — Tue, 19 Apr 2022 13:29:59 GMT

ASUB, can you please list the steps of filing tax for pensioners from India in detail in this thread.

It will help all of us to understand where there are challenges in the sequence of steps. If there are no challenges at least we will know that this is the process to be followed

Re: Filing the US tax for parents earning retirement income and paying taxes in India

Anonymous — Tue, 19 Apr 2022 13:48:36 GMT

For W2s, we say no W2s. In the section for IRA/401K/pension plan withdrawals (1099R) under retirement plan/social security add 1099R. If it offers to import, select the option that says type it myself. In the payer address, select the foreign address and enter the address of the institution that is paying the pension in India. In the employer TIN, we entered 11-1111111. The form says if known, but I believe it didn't let us go forward until I entered the TIN, so I just entered all 1s. Ignore #7 (form-W2) in the 1099R and go to #8 (Form 1099-R). Convert the Indian pension rupees to USD using the current exchange rate. The pension gross should be from January to December. In India, the tax season is I believe April to March. Enter the gross USD that you converted in Gross Distributions (a). Under Distribution Codes (J) select/enter 7.
As move forward, if TurboTax asks you what type of distribution, select other distributions. For the retirement plan, choose non-qualified plan. Under "Do any of these situations applies to you", select I need to file a substitute 1099R.
Select form 4852 (if it doesn't come automatically). In 4852, on line 9 (substitute 1099R) enter
Pensions earned in Indian rupees are converted into US dollars using the
treasury department currency exchange rate. The pension is not taxable in the United States due to the United States - India tax treaty Article 19.
The pension is currently taxed in India.
Under line 10 (effort), enter
Since the entity is outside the United States, they do not issue form 1099R or W2.
I believe that covers most of the stuff my parents did to file the taxes for the last few years. I do not have all the information with me to give a clear step-by-step guidance.

Re: Filing the US tax for parents earning retirement income and paying taxes in India

PBR2 — Tue, 19 Apr 2022 14:44:34 GMT

Thanks, this thread worked perfectly for me to file my parents' taxes. The only issue I ran into for CA was that I had to print the state return. Did you run into same issue in your case? May vary from state to state, though.

Re: Filing the US tax for parents earning retirement income and paying taxes in India

Anonymous — Tue, 19 Apr 2022 14:49:56 GMT

I was able to e-file in Illinois.

Re: Filing the US tax for parents earning retirement income and paying taxes in India

confusedabd — Fri, 30 Aug 2024 07:11:17 GMT

@bkiran79 Can you help describe what worked for you? I am in the same boat not knwoing where to input indian government pension income and the corresponding taxes paid in india already.