Where to enter foreign pension income and foreign tax credits?

[macuser_22]

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@sfehervari wrote:

This year, 99-9999999 is not being accepted as a FED ID number in the 1099R for Deutsche Post (Germany).  I have tried this for several days now.  It must be fixed or auf wiedersehen to Turbo Tax!

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Try 11-1111111.

[carolineistanbu]

trying to indicate that the pension fund is foreign on a 1099-R.  turbotax automatically treats the pension as US income. 

as a result, my foreign tax credit is reduced as it is calculated using the IRS formula: foreign tax credit= foreign sourced income/[US source income + foreign sourced income]xUS tax liability

all this means that there IS double taxation, because US source income is overstated, hence a coefficient <1 is applied, when it should be 1 as all income is foreign sourced

[BrittanyS]

If the pension is Foreign Income, you will want to ensure it is entered as foreign income, not US Income.  This should allow the Foreign credit to be applied correctly.  

To enter Foreign Income in TurboTax, follow these steps:

1. Click on Federal Taxes 
2. Click Wages & Income  (If you're in TT Home & Business:  Personal > Personal Income > I'll choose what I work on)
3. Scroll down to the Less Common Income section, and Click Start next to Foreign Earned Income and Exclusion.  
4. On the screen Did You Make Any Money Outside the United StatMarkmark Yes and click Continue.  
5. On the screen What Form(s) Was Foreign Income Reported On? mark the selection that applies and click Continue. 
6. Continue through the screens, entering the requested information.

To enter foreign taxes paid, please follow these steps:
 

1. Click on Federal Taxes
2. Click Deductions & Credits (In TT Home & Business:  Personal > Deductions & Credits > I'll choose what I work on).
3. Scroll down to the Estimates, and Other Taxes Paid section.
4. Click on the box next to Foreign Taxes.
5. Click on the Yes box on the Foreign Tax Credit screen.
6. Enter the information requested on the screens.

For more information on the Foreign Earned Income Exclusion, see Foreign Earned Exclusion on the IRS website.

[fjk56]

Me too. First year for me and not sure how to proceed. Can you explain your process?

[AmyC]

Foreign pension income, first determine if it is taxable income to the US based on the treaty. See United States Income Tax Treaties.

If the income is taxable to the U.S.:

1. You need to enter the income and there are a couple of ways, including the one described above your question.
2. then you can proceed to enter the taxes paid as described above.

If the income is not taxable to the U.S.: 

1. enter the retirement income - again as described above or a substitute 1099-R.
2. you will need to enter the income under misc income as a negative amount.  To do that:
   1. go to the income section,
   2. scroll to the bottom option,  Miscellaneous Income.
   3. select,
   4. scroll to the bottom again, Other Reportable Income,
   5. select.
   6. Enter the income as a negative and the description (name your exempt country, like Netherlands) treaty. 

For further information on tax treaties, refer to the International Tax page  of the U.S. Department of the Treasury.

@fjk56 

[eep_1948]

Why doesn't TurboTax simply fix their substitute form 1099-R so that income from a foreign pension can be reported without using a fake TIN or entering the income as 'miscellaneous'?  The IRS states that NO TIN should be entered on a substitute 1099-R when the pension income is from a foreign source.  The field for TIN should simply be left blank.  When the foreign pension income is not all taxable (because the recipient has a cost basis in the pension), the IRS requires reporting of the Gross and Net pension income and the remaining cost basis each year - not just reporting the net income as 'miscellaneous'.  But Turbo Tax perpetually refuses to cooperate with e-Filing when the substitute 1099-R's TIN field is blank. 

Turbo Tax's continued failure to conform to IRS directions leaves the Turbo Tax user with the choice of either filing a return that violates these rules or filing a paper return, which the IRS is no longer staffed to process without flagging the return as 'Not Filed' because the IRS can't process paper in a timely manner.   Entering the foreign pension income as 'miscellaneous' so that Turbo Tax will e-file the return is in violation of IRS reporting directions when the foreign pension income is not all taxable because the recipient has a cost basis in her pension.

TurboTax has refused to address this problem for many years, despite annual feedback from users with the same problem reported above.  Why not just fix Turbo Tax so it follows IRS directions? 

I personally am sick and tired of wasting time every year asking Turbo Tax to fix this problem and then trying to file my return when another year rolls by and the problem remains. 

The 2020 tax year was a watershed for me.  After timely filing a paper return for the 2020 tax year because Turbo Tax cannot support e-filing a return that follows IRS directions, I dealt with months of fallout when the IRS and later Social Security (IRMAA) struggled to catch up processing the data on my 'unfiled' 2020 return.  Exasperated by both Turbo Tax and the IRS, I now just follow the crowd enter a fake TIN on the foreign pension's substitute 1099-R.   Pathetic!

Turbo Tax may value my feedback, but year after year Turbo Tax never does anything about it.  Thoughts and Prayers….  Hearts and Flowers....  BS

[Xian2]

Totally agree as I am in the same boat.

If TT team is reading this at minimum we should get an explanation why this has not yet been addressed.

Is there a legal/IRS concern? is it just a question of backlog and priority with TT team? is it too expensive?

Give us something please !!!

Christian

[TexasTea]

I discovered this thread after running into the same issue with foreign pension income in HR Block software:  just like TurboTax, it required me to fake a 1099-R, including a bogus TIN, to get the software to e-file the return (fyi the 99-0999999 suggested earlier in this thread worked for HR Block software.)

But like some other commenters above, I'm wasn't satisfied with filing a bogus TIN, or the alternative of filing as Line 8 "Other income", so I started Googling for other options.   

I came across a thread that said TaxACT could handle foreign pensions without using a fake 1099-R.  So I tried that, and confirmed that TaxACT does indeed have an income category called "Foreign Pension Distribution" that does exactly what we all want:  it accepts the input without requiring a tax id, and it puts the income on the pension line, while still allowing e-filing.  Looking behind the scenes, I can see that the software created a worksheet they call "Form FEC", which stands for "Foreign Employer Compensation and Pensions" that is specifically designed to handle this situation.   

I already paid for my 2022 HR Block software, but decided to eat that sunk cost, and switched to TaxACT  because of this issue.  

[Kosetife]

What you said is important but only valid for those taxpayers that have a foreign pension distribution but there are many others taxpayers, like me for instance, that receive a foreign social security income ( there is no distribution ) . According to IRS foreign social security income must be of course taxed as foreign income pension like annuities but there is no distribution or whatsoever, it’s a direct payment from a foreign government agency and in this case  the correct place to report it is in F1040 line 8 under “ other income” indicating clearly that it’s a “ Foreign Social Security from xxx”.  In xxx write the country. If you want you can attach an addendum with the Foreign Social Security Administration or Agency tax identification that acts as the payer. 

This is the correct way for foreign social security incomes. Should you have a foreign pension as result of an annuity plan or any other distribution retirement system it could’ve the way you mention but no for foreign social security incomes.

Having a retirement with any kind of distribution system could trigger also FinCe and FATCA which is not necessary the case of foreign social security incomes. 

[kellejil]

Mine was just rejected by the IRS using 9s and 0s 

[MarilynG1]

You can report your Foreign Pension income as 'Other Reportable Income' and bypass the EIN issue trying to report a non-existent 1099-R.

The income is taxed the same in both places. 

If you paid any Foreign Tax on this income, you can claim a Foreign Tax Credit in the Credits & Deductions section. 

1. Go to federal>wages and income
2. Less common income>miscellaneous income
3. Go to other reportable income
4. Enter a description of your foreign income and the amount
5. You will be able to file electronically reporting in this manner.

@kellejil 

[kellejil]

'Thanks Marilyn I did as you said and it reduced my refund from 16,317 to 12,271 so obviously entering it as a pension gave some sort of favorable treatment and as other reportable income did not.

And yes, I did enter the foreign tax credit and I had a carryover and my foreign credit/carryover was reduced from 6004 to 5300. Feeling going the paper copy route may just be better and yield a higher return

[BernardOng]

I have been reading almost all the threads (from 2018) on how to report foreign pension (mine is from Japan, all taxable, with no cost basis involved). It was a bit of a challenge reading through all the threads up to the present 2023. So many varying opinions that I didn't know who and what is correct. 

So here is my synopsis on 3 approaches so far to date (Mar 2023):

Approach #1: 

Use the substitute 1099-R form (aka Form 4852). The challenge is on the Payer TIN entry it seems and I correctly think that inputting a bogus TIN is not the right approach and could possibly trigger some kind of exception. I also think using the 1099-R, main or substitute, approach assumes distribution is from a US source, of which foreign income is not. This is evident by the way it asks for information that is a bit US-centric.

Approach #2:

Using the foreign earned income through the "Less Common Income" section > Foreign Earned Income & Exclusion > Did You Make Any Money Outside the United States? Yes > What Form(s) Was Foreign Income Reported On? > Enter Your Foreign Earned Income > then enter your employer's information.

This approach does not make sense to me. First off, pensions or retirement distributions are not considered as earned income. Secondly, it asks for an employer name which does not exist as it's not earned income from work done. I don't think this is right approach either.

Approach #3:

Enter as Miscellaneous Income > Other Income. Enter foreign pension amount and detailed description of the source(s) and country. This is what I think as my best approach, relatively speaking. Since I believe that foreign pension is also taxed in my state anyway, and without a cost basis on my end, this is probably my best approach. Not perfect, but relatively easier and a better approach for me in my specific situation.

Let me know if my analysis and approach makes sense. I am open to any further feedback, comments and opinions if there is anything major that I might have overlooked.

Thanks,

Bernard

[DaveF1006]

Yes, I would use number 3 to report your foreign pension amount. Step 1, in my opinion, is nt a viable approach and may have its limitations with efiling. Approach 2 is totally wrong because this is not foreign earned income. 

Approach 3 is not perfect but is the better alternative than the first two. in fact, this is my recommended choice for anyone reporting foreign pension income.

One additional note, if you paid foreign tax to Japan, you may be able to claim a foreign tax credit. Here are the steps.

1. Open Turbo Tax
2. Go to federal>deductions and credits>estimate and other taxes paid
3. Foreign taxes >start
4. Start answering questions. Make sure you answer the question correctly about if this is the first year you are making the simplified  election
5. Answer the questions in the next screens until you reach a screen that talks about income type. This will be a passive category of income. 
6. Next screen is where you add the country your foreign income was paid in. 
7. Next screen will ask you what your source income taxed in that country. Here you will allocate income taxed while you were in that country.
8. You will continue answering questions until you get to a screen that says foreign taxes paid to XXXX. 

[BernardOng]

Thanks for the confirmation Mark. 

I don't have foreign taxes since the distribution is so small. But thanks for the info (in case I would need it sometime in the future).

Hopefully, TurboTax gets to just address and put this foreign pension and foreign retirement income matter to bed, as approach #3 would still be problematic especially if some states do not tax other miscellaneous income. It's already been years of discussions and workarounds on this. In the meantime, I hope my synopsis will be helpful to someone else with same questions - the threads, albeit tedious, were still super helpful.

Thanks to everyone who commented.