Credit on foreign taxes paid on pension

[juham2013]

Hi,

Could anyone confirm that I have understood the foreign tax credit carry-over correctly?   When I am looking at the summary of our family income (I am filing married jointly) and the taxes that we've paid, I see that only a portion of the taxes I paid on the pension was allowed.   Again, this pension was paid by a foreign entity in Europe.

Q1: Does that mean that the portion that was disallowed will carry over to tax year 2025?

Q2: Is a foreign tax credit treated differently for a "lump sum" versus monthly payments?  I got a lump sum payment this first time only and the pension is paid monthly going forward.

Q3: After I reported this foreign pension and taxes paid on it, the interview process asked me to modify the total gross annual income,  either up or down (in my case, it will be down = placing a negative number in the field).  I was "surprised" at this question as I have never had TT software prompting me on this.  I assume that this is "normal?"

Q4: I presume that profit/loss from sale of company shares go under under "gross annual income" as well, correct?

Awaiting pearls of wisdom to save my sanity!

JJ

[DaveF1006]

Yes, let's answer each question individually.

1. Any unused foreign tax credit will carry forward up to ten years if not used in the current year.
2. The foreign tax credit is not treat4ed differently for a lump sum payment.
3. You are asked to modify your total gross annual income to accurately reflect your income from all sources, both domestic and foreign. 
4. Yes, the sales of foreign company stock will be included under Gross Annual income.  

Please reach out if you have additional questions.

[juham2013]

Hi DaveF1006,

I appreciate your responses.

On 3, I was a little surprised as TT had never asked me to change the gross annual income figure before.

When I chose to file a "substitute" 1099-R , there are many fields that I am asked to fill in although I don't have a 1099-R.  I can't dream up figures for boxes that aren't there as I don't have a 1099-R form.  Embedding an "example" screen below.   For instance, "Capital gain" is not even relevant as this is a pension that I have paid foreign taxes on.   "Total distribution" is not relevant either as I am not closing out an account and going forward I am paid a pension every month. So, what is your advice?  

Thanks!

JJ

[juham2013]

On 3 again, I would think that TT automatically totes up foreign and domestic income.  Isn't this software supposed to be "smart"?   Seems really weird to me that one needs to manually "tweak" total income.

JJ

[juham2013]

This foreign pension is very similar to the Social Security payments here in the U.S. that are based on employment history.  This isn't an IRA but earned pension income.    The interview for the substitute 1099-R sounds like one for investments and so it is entirely irrelevant.

JJ

[juham2013]

I am using the Desktop Version of TT Home & Business.

[DaveF1006]

Yes, if this is referring to reporting the Gross Income in the Foreign income sections, the program is usually accurate. You do need to record the gross income from foreign sources and then the program will compare this income from all sources of income in your return to determine the foreign tax credit. With this in mind, I am not sure why the program asked you this unless there was a discrepancy in your reporting. Determining this cause however is difficult to pinpoint at this juncture.

As far as your federal pension, instead of creating a substitute 1099 R, there is a simpler approach you may make.

1. Log into your account
2. Select Wages and income
3. Less Common income
4. Miscellaneous Income, 1099-A, 1099>start
5. Scroll to the bottom of the page to Other Reportable Income
6. Other taxable income, answer yes
7. Then give a brief description of the income and the amount listed.  Here call it Foreign Pension Received and the amount of the pension.

[juham2013]

I am using a Desktop version of TT.   It looks a bit different.

Thanks!

JJ

[juham2013]

The "simpler way" doesn't work.   If I understand correctly, if I use the simpler way, TT doesn't allow me to take the foreign tax credit as it is expecting that I report foreign taxable income reported in the "proper" section.

JJ

[juham2013]

My pension is not "Federal" as you wrote but paid by a foreign entity.

JJ

[juham2013]

I get this screen which suggests I contact the IRS which sucks.  The main reason I use TT is to not have to mess with mailing anything as my time is very valuable so I am not going to waste it by even TRYING to call the IRS.

[juham2013]

[AmyC]

If you need to file a state return, leave the pension on the federal, file the state with the appropriate pension deductions/ credits and then follow these steps:

Delete the substitute 1099-R because you don't want to mail in your federal return.

Enter the income:

1. go to the federal income section
2. scroll to the bottom
3. Miscellaneous Income, 1099-A, 1099-C, Start
4. Scroll to the bottom
5. Other reportable income, start
6. Select Other income not already reported on W2 or Form 1099, start
7. Other wages received, select yes, continue
8. Household, continue
9. Sick pay, continue
10. Medicaid, continue
11. Any other earned income? Select yes, continue
12. Select other
13. Enter description and amount
14. done

[juham2013]

Hi Amy,

No state income tax where I live.

As I mentioned, I already tried what you are suggesting.  It won't work as I can't claim a foreign tax credit against "Miscellaneous income" unless I report the income from foreign pension under the Foreign Income section.

JJ

[AmyC]

The substitute 1099-R is your only option and mailing it in.  Form 4852 will generate the substitute form and you will keep your foreign tax credit.