1. Is foreign social security pension (not an annuity, and paid by Sweden) general or passive category? Is it eligible for credit?
2. If passive income is taxed at 30% or 34% is that highly taxed (so then it's general)? FYI we are in the 22% bracket.
3. If income category could go either way, what is more favorable, passive or general category?
4. If I have both passive and general, do I need to list a certain one first so the software will work correctly?
5. My utilized and carryover amounts change depending if I check passive or general, why is this? Which is better? I'm actually not sure if I will ever use the carryover, so I don't know.
6. How can I tell if credit is better than deduction? It seems daunting to redo all the screens... is that what I need to do?
got better new s for you.
this is from the tax treaty between Sewden and the US from article 19
2. Notwithstanding the provisions of paragraph 2 of Article 20, pensions (including the Swedish
“allmän tilläggspension") and other benefits paid out under provisions of the social security or similar
legislation of a Contracting State to a resident of the other Contracting State or a citizen of the United
States shall be taxable only in the first-mentioned State (Sweden).
3. The term "annuities" as used in this Article means a stated sum paid periodically at stated times
during life or during a specified or ascertainable number of years, under an obligation to make the
payments in return for adequate and full consideration (other than services rendered or to be rendered).
so it seem that the sewdish social security if you are a resident or citizen of the US is not taxes in the US. so you get no FTC
for how to report see this link
here's an excerpt
You can input a foreign pension into TurboTax (and thus report it on a US tax return) in one of two different ways.
One is to enter the foreign pension on Form 1040, Line 21. You can do that mechanically in TurboTax through the "other income" interview of the program (i.e., through the pathway Federal Taxes -> Wages & Income -> Less Common Income). If you do that, I might respectfully suggest shortening the description you input for Line 21, so that the wording will all fit on Line 21 and be readable to the IRS. You could try something simple and straightforward, such as "Swedish Social Security" for example. then below that enter same amount as negative number and use a descriptio as exempt by treaty
Two, a US taxpayer with a foreign pension amount can alternatively create a "substitute" Form 1099-R. This will have the same practical effect as reporting the income on Form 1040, Line 21 (i.e., the tax is just the same), but it gives the IRS more detail, and allows the taxpayer to explain their foreign pension in somewhat greater depth.
If you choose this way, then you fill out Form 4852 (substitute 1099-R statement). This form is available in TurboTax, and can be easily added to a tax return by first beginning a normal 1099-R entry, and then answering the program interview that you need to prepare a "substitute" 1099-R. However, again, the end tax result is still the same.
Or you can simply fill out Form 4852, include the full gross distribution amount (in US dollars) of the benefits received in Box 8a, but then in Box 8b you would enter $0. Normally, a separate tax treaty benefit claim needs to be included with your tax return (by filing Form 8833) to take such a treaty-based tax position. However, where the excluded foreign income is simply a result of pension or foreign social security, then Form 8833 is not required, per the IRS.
heres a link t the treaty
as to FTC categories. there are many heres a link to instructions definition of what goes in each category starts on page 4.
credit vs dedution. many taxpayers end up with FTC carryovers that eventually expire. from what i've seen in many years of practice is once you start having carryovers they just continue to increase until they expire.
for every $ of credit used you owe a $ less in federal taxes. as a deduction they may be worth at most about 40% for the taxpayers in the highest tax bracket s
Thank you for the info about the Treaty. I used the Treaty claim the first year but the 4852(?) requires you to mail file and that just killed me because my return is so many pages and then I had to mail file my three state returns too. I chose to report it as other income and take the Foreign tax credit, even though it was a little less favorable. It was nearly a wash when I figured in the cost of printing and mailing, not to mention the aggravation factor.
But the entire question of FTC vs deduction... can you explain some more? I understand the credits may go unused, which makes them worth zero. Would a deduction that's worth 40% (at most) is still be worth more? The next question is, would I need to itemize to get that? I am not sure I would have enough deductions to itemize instead of taking the standard $25k deduction.
in summary, no option is great.
1. don't claim the income (claim treaty) and have to mail file
2. get the FTC and probably never use it
3. take the deduction (way less $) IF I have enough to itemize