Paid foreign tax credit on pension paid by foreign country not working !

[juham2013]

I have been at this for several DAYS now and nothing seems to work.

I am paid a pension by a foreign government that I need to report.  This pension is earned income based on employment history in the foreign country that I used to live in more than 20 years ago.  There is an international bi-lateral tax agreement between said country and the U.S., to prevent double-taxation.  Only the country where I used to live have the right to tax the pension I am getting although I am under the obligation to report it as income to the IRS. The foreign entity paying the pension does not have a 1099-R form.  Even filing a "Substitute 1099-R" won't work as TT (Home & Biz) asks me to fill in fields that can't be done as there is NO 1099-R form to be had.   The software seems to think I HAVE the 1099-R which I don't have.

Method 1:

I have tried to report the foreign paid pension under foreign income section as per described above, but that is not possible.  The Substitute 1099-R form seems to assume that I am reporting income from an IRA distribution which is not the case.  Leaving a slew of fields blank drives TT crazy so this method simply does not work.

Method 2:

Trying to report the foreign paid pension under "Miscellaneous" or "Other income" works BUT, I can't take a Foreign Tax Credit using this method.   Reason being that the foreign tax credit can't be taken against income that is NOT reported under the Foreign Income section.

Am I the only individual in the universe receiving a pension from a foreign country who can't properly file taxes using TT Home & Biz?

JJ

[rogge1722]

Do you have any foreign income frm a 1099 or a K-1 as this influences the screen presentations?

[juham2013]

The only foreign income that I have reported is very modest dividends from company shares I own.  

I also fell to thinking that this sort of income should be termed "foreign social security income" as said income wasn't accrued by plowing a portion of my salary into a 401(k) or anything like that.  The "pension" from overseas could be likened to "social security payments" here in the U.S.

The issue is not really that I can't report this income BUT rather the impossibility of claiming a tax credit on this income.  The international tax treaty between the U.S. and the country where I was born also stipulates that this income is not taxable by the IRS.  Of course, I am obligated to report the income to the IRS and the tax credit that I am due will more than likely NOT make any difference in the amount of total taxes we pay here in the U.S.  We're filing married jointly.

Thank you so much!

JJ

[rogge1722]

Is there a 1099-div issued and tax paid in box 7? 

[juham2013]

As the dividends are paid overseas, no 1099-DIV is issued either.  However, I have never had a problem with reporting dividends.  I also report foreign taxes that I have paid on said dividends.  

So, in short, no 1099 or any kind is available from these foreign entities.

JJ

[juham2013]

According to the bi-lateral tax agreement, the foreign dividends are to be taxed by the IRS.  However, I have been taxed on them by a foreign government which is why I have also claimed a foreign tax credit.

JJ

[rogge1722]

What category of income will you use for the pension?

[juham2013]

As I wrote earlier:

Method 1:

I have tried to report the foreign paid pension under foreign income section as per described above, but that is not possible.  The Substitute 1099-R form seems to assume that I am reporting income from an IRA distribution which is not the case.  Leaving a slew of fields blank drives TT crazy so this method simply does not work.

Method 2:

Trying to report the foreign paid pension under "Miscellaneous" or "Other income" works BUT, I can't take a Foreign Tax Credit using this method.   Reason being that the foreign tax credit can't be taken against income that is NOT reported under the Foreign Income section.

Neither method works!

JJ

[juham2013]

Looking at IRS info where form 1116 is suggested to claim foreign tax credit.  I will need to see how to report the foreign income though! A "bogus" 1099R won't work and I don't think it legal either as with no form there is no figures to use to fill in the different fields.

Edit:

It seems like using form 1116 is my only option as it does also allow me to report the income from foreign "social security" type benefits.  What is the best way to jump to form 1116 form using Desktop version of Home & Biz?  The "Search" function is a joke and it seems like using it puts me in twilight zone as it appears to processing but not doing anything.

JJ

[rogge1722]

Start over:

First the Income section. Since you have no 1099-R, reporting the pension under Miscellaneous will work.
Next is the dividend. To report that, bring up a blank 1099-DIV. Insert the name of the payer, the amount in box 1a and since there is a tax treaty, we can assume they are qualified, so insert the same amount in box 1b. Insert the tax paid in box 7.

Next is the foreign tax credit. TT will put the dividends in the Passive category of income. We need to know if the pension will be treated as passive category or general category or something else. If passive only one copy of F1116 is used. If general category is selected, a separate copy is used.

[juham2013]

Based on the definition below:

The IRS defines passive income as activities where the taxpayer does not materially participate.....

the pension ("Foreign social security") that I am receiving monthly is to be considered passive.

Now, I will need to report very small interest and dividend income (from overseas) and no 1099-INT or 1099-DIV forms aren't available.  Data from my brokerage account here in the U.S. can be imported automatically by TT.

With regard to the order or sequence in which I need to report INT/DIV income; does  it make a difference?

Best!

JJ

[rogge1722]

Have you completed reporting all 1099's that have foreign tax paid whether downloaded or a filled in blank in the income section?

[juham2013]

https://ttlc.intuit.com/turbotax-support/en-us/help-article/import-export-data-files/enter-foreign-t...

The page above seems to be a practical way to enter both the foreign earned pension (very similar to "social security" income here in the U.S) and foreign taxes paid.   

There are a LOT of fields to fill in though and some of it is pretty confusing.  By that I mean that it appears that in order to get the appropriate foreign tax credit you will need to provide almost as much information as in a 1040 form.   

Questions related to the above:

Q1: Still not quite sure in which category of income a foreign paid pension ("Social security" income) falls?   Looking at the definitions in an IRS publication it looks like it qualifies as "Passive income."      I also see this form, to report foreign earned income at https://www.irs.gov/pub/irs-pdf/f8833.pdf  On the first page it even says "The taxpayer is a dual-resident taxpayer and is disclosing a treaty-based return position...." as an alternative.  I have never filled in a form 8833 and it looks fraught with more legalese than I can stomach.  I am not sure under which section/option TurboTax (Desktop version) provides for reporting foreign earned income should I go the Form 8833 route?   

Q2: IF I have all data put into TT Home & Business and the only thing that is missing is the foreign earned income/foreign tax credit, wouldn't form 1116 already be "pre-populated" with data from ALL those other forms?   IF the answer is NO, why would I need to RE-input figures from all those other forms/interviews AGAIN?

Help me save my sanity someone!

JJ