I live in Japan, and I have a few questions about US tax on my foreign social security pension.
This November I'll turn 63 and qualify to start receiving a Japanese Social Security-like national pension. For ease of illustration, let's say it converts to exactly US$10,000/year. I'm now trying to figure out how much of that Japanese social security will be taxable by the US.
According to the IRS, "foreign social security pensions are generally taxed as if they were foreign pensions or foreign annuities." I've checked, and nothing I can find in the US-Japan Tax Treaty seems to apply directly and give me a waiver, so it seems that I need to report the income to both countries. But, assuming I pay tax on it to Japan, at least the US should give me a tax credit. That'll come later.
Anyway, for starters, I've put together a list of all of my contributions into the Japanese system and converted them to US$ using the US Treasury exchange rates for each year. That gives me a US$ total. Again, to keep things simple, let's just say I've paid in a total of US$50,000 in "premiums".
Next, I want to divide my total US$ by the number of years I have left from age 63. The actuarial table on page 14 of IRS Pub 939 (General Rule for Pensions and Annuities) shows males age 63 with a multiple of 16.2 So I assume if I divide my total US$50,000 by 16.2, that should give me the amount I can exclude each year (roughly $3,000). Right?
Assuming that calculation is OK, I understand how it would work for a full calendar year (eg: 2021 and beyond): $10,000 gross - $3,000 excludable = $7,000 taxable in USA.
Questions: But what do I do about 2020, a partial-year (Nov/Dec only)? Since Japanese pension payments are every two months, I'll receive just the one payment (1/6 of the annual pension total, or $1,666) after I turn 63 in 2020. How much of that $1,666 can I exclude in 2020? And what's the calculation?
I'd like to understand this.
