How to claim US-China tax treaty for Chinese pension (article 17)?

[Anonymous]

I am a US resident/Chinese citizen. I received pension from my prior employer in China. According to US-China tax treaty article 17 (https://www.irs.gov/pub/irs-trty/china.pdf), I think the Chinese pension is not taxable in US. 

However, I don't know if the pension is still reportable? Do I need to enter this pension in the tax return somewhere? How can I claim this treaty...  If so, where? 

I also tried to read up on Form 8833 (https://www.irs.gov/pub/irs-pdf/f8833.pdf), it sounded to me that pension is exempt from reporting using this form. Can someone please confirm? Thanks so much!

[LinaJ2018]

Let's first verify if you qualify for the tax treaty benefit.  Please read :  According to the US-China tax treaty, pensions paid by the People's Republic of China for services performed for China are exempt from U.S. income tax unless the recipient is both a citizen and a resident of the United States.These exemptions do not apply to income or pensions for services performed in connection with a business carried on by the People's Republic of China or its subdivisions or local authorities.  Please also see https://www.irs.gov/pub/irs-pdf/p901.pdf page 28

If you meet the criteria, you would report the foreign pension by creating a substitute Form 1099-R.  In TurboTax desktop MAC program, here are the steps:

1.  Open your tax file, 

2.  Across the top, select Federal Taxes/Wages & Income/I'll choose what I work on 

3.  Scroll down to Retirement Plans & Social Security/IRA,401(k), Pension Plan Withdrawals (1099-R), select                             Start

4.  On screen, Tell Us Which 1099-R You Have, make your selection and check the box I need to prepare                                  a substitute 1099-R and follow the prompts to enter info.

As to the Federal ID, if your foreign institute does not provide an ID number, please try entering nine 9s.  If there is an electronic error occurs, remove the above entries and enter the pension under Miscellaneous income.  Please see instructions below.  Please note that per IRS, as long as the pension is being reported and included in total income, whether entering as a substitute 1099-R or a Miscellaneous entry, it is not problematic.  

1.  Across the top, select Federal Taxes/Wages & Income/I'll choose what I work on 

2.  Scroll down to Less Common Income/Miscellaneous Income, 1099-A, 1099-C- Start 

3.  Next, selectMiscellaneous Income- Other reportable income, select Start to enter info

In order to enter the tax treaty exemption and allow the program to reduce your taxable income, you would enter the exemption amount as a negative figure.  Please follow:

1.  Across the top, select Federal Taxes/Wages & Income/I'll choose what I work on 

2.  Scroll down to Less Common Income/Miscellaneous Income, 1099-A, 1099-C- Start 

3.  Next, selectMiscellaneous Income- Other reportable income, select Start to enter info as a negative amount

[Anonymous]

@TurboTaxLina  Thank you for answering my question. The pension I received is from Chinese Government. I read the IRS article you referenced and I believe the pension is exempt because I'm a Chinese with US residence (not a US citizen).  I was trying to follow your instructions but had 2 questions: 1) Is there an IRS guidance that entering substitute 1099R is the same of Miscellaneous income? 2) Can you please clarify why I should enter an negative amount in Miscellaneous Income? It seems counter-intuitive.  Thanks again! Really appreciate your help!

[Anonymous]

@TurboTaxLina After I entered the negative income in Miscellaneous amount, it brought down my AGI, which doesn't seem right since the goal was to make my foreign pension tax exempt (per tax treaty), but not reduce/cancel out my taxable income. I am very confused.

[bine22]

Instead of entering negative income for the pension I would just enter "Zero" as the taxable amount and enter the treaty article as explanation

[swongtax]

Please clarify and confirm this interpretation:

If the China pension is from a former Chinese employer, and not for services performed for China (government Pension), and the taxpayer is a Green Card Holder living in the U.S., then the former Employer Pension payment is taxable on the U.S. Income Tax Return?

If the taxpayer is a U.S. Citizen and lives in the U.S., then all types of China pensions are taxable on the U.S. Income tax return?

[ken777]

What did you find out?  (This is a very confusing subject.)

[RobertB4444]

@ken777  If the pension is from the Chinese government AND the filer is not a citizen of the US or is a citizen and is not a resident then the pension is not taxable.  In order to claim this exemption the filer must file form 8833.  

If you are a resident or non-resident looking to file a US tax return we recommend using Sprintax to handle these issues.

Here are some pointers and a link to Sprintax.