How do you report foreign taxes paid in India in turbo tax to get foreign tax credit?

[confusedabd]

I did not get a 1099-INT from bank in India, and the tax return includes both pension income and interest income together, so the foreign taxes paid is result of this combined income. I manually entered foreign interest income and foreign taxes paid in 1099-INT. However, I am struggling to find a place where I can enter my foreign pension income and the corresponding taxes paid for it. After walking through 1099-INT foreign income, I select General Category income and this is where it lands. Doesn't ask the income or foreign taxes paid.

Other Deductions Not Definitely Related

Enter any other deductions for general category income that are not definitely related to the gross income on this worksheet.
Description Amount   First Deduction
	Second Deduction

[pk]

@confusedabd , assuming that you are A US person (  citizen / GreenCarxd / Resident for Tax Purposes ),

(a) for interest earnings you enter  the details  just as of you have had a 1099-INT -- this is foreign source income, for purposes of US return.  Any taxes  levied/paid  to India on this is eligible  for Foreign Tax Credit / deduction .  Note that there is safe harbor amount  ( US$300 per filer i.e. US$600 for a joint return ) for foreign taxes paid  that requires nil form 1116.

(b) On pension  distribution  from sources in India , the tax treatment in the USA depends on the source of the income --- so please tell  more about this .  This is addressed in the US-India  Tax Treaty.

I will circle back once I hear from  you .

Namaste ji.

pk

[confusedabd]

Thank you for getting back. I did come across the $300 mark, however, incase of interest income the taxes paid are more than $300. The other income and foreign taxes I am trying to enter is the government pension income from India, since I am now retired from my job.

[pk]

@confusedabd , Namaste ji

1.  Are you saying that  the  taxes  you paid to India  on interest earnings ( from bank  savings accounts  / CDs or such ) and allocated to the US tax year in question is   greater than  US$ 300 ?   And you are filing as single ?

2.  Your govt. pension  is from the state govt. / central govt / military pension   -- all of it  or partly also from private pension  or  Provident fund  etc.

I am asking for details because   US-India  treaty  does make difference  between the different types of pension.

Please help with details and I will come back on how to  include  the income on your US return.   

I am assuming that  you  have been a US person for the whole year of 2023.   ( when did you enter this country and with what visa  etc. ? ).   Which state is your home state -- most states do not recognize  tax treaty conditions.   

regards, 

pk

[pk]

@confusedabd , the reason for my questions on details of the situation is because of  article 19 --- to wit:

2. (a) Any pension paid by, or out of funds created by, a Contracting State or a political
subdivision or a local authority thereof to an individual in respect of services rendered to that
state or subdivision or authority shall be taxable only in that State.
(b) However, such pension shall be taxable only in the other Contracting State if the
individual is a resident of, and a national of, that State. 

However , the technical explanation of the treaty  draws attention to the use of "and " in the  2(b) above i.e. one must be both a resident and a national of US for the govt. pension  from India to be taxed by the USA ( double taxation ).  -- to wit :

Paragraph 2 deals with the taxation of a pension paid by, or out of funds created by, a
Contracting State or a political subdivision or a local authority thereof to an individual in respect
of services rendered to that state or subdivision or authority. Subparagraph (a) provides that such
a pension shall be taxable only in that State. Subparagraph (b) provides an exception under
which such a pension shall be taxable only in the other Contracting State if the individual is a
resident of, and a national of, that other State. Pensions paid to retired civilian and military
employees of a government of either Contracting State are intended to be covered under
paragraph 2. Social security and similar benefits paid by a Contracting State in respect of
services rendered to that State or a subdivision or authority are also intended to be covered.
Paragraphs 1 and 2 are similar to paragraphs 1 and 2 of Article 19 (Government Service)
of the OECD and the U.N. Model Treaties. These paragraphs differ from Article 19 of the U.S.
Model under which such remuneration, including a pension, is taxable only in the Contracting
State that pays it

Therefore please answer my questions fully.

Note that if you are uncomfortable in  providing details  in this public forum, you can always  PM me  -- just no personally identifiable information, please.

Namaste ji

pk

[confusedabd · Accepted solution]

Thank you so much for looking into this and all the questions to try and help me. 

1) correct, filing as single. Taxes paid to India for interest income is more than $300.

2) Central government pension.

Yes here for 2023, so I do need to file taxes. We are in Washington state.

[pk · Accepted solution]

@confusedabd , Namaste ji.

As mentioned above generally under  article 19 section 1 & 2 , ONLY India is allowed to tax pension paid to a Non-Citizen of USA, residing in the USA.  Please read the  earlier quote from US-India Tax treaty / technical explanation.

I am also  providing a page  link from the IRS that talks about the use of form 8233 and exceptions thereto requirement.   See -->  Claiming tax treaty benefits | Internal Revenue Service (irs.gov)

near the bottom under "exceptions".

What this means is  you enter the pension income under pension/IRA block, create a dummy 1099-R, using  EIN of the payor as  00-1234567 or obvious  dummy one like 12-345678. so you satisfy  TubroTax checks.

Then under  other income you  generate a  negative pension amount and in the comment/source field of the income enter   " US-India Tax Treaty article 19 section 1 & 2"

  This will show the amount of pension and zero it out based on the treaty.

NOTE -- in this I am assuming that you are a Resident but not a citizen of USA.

On your question about  interest earning greater than the safe harbor amount --- note that depending on how much higher than the safe harbor amount the actual amount is .  Form 1116 will recognize the total amount of taxes paid on passive income ( interest income )  but will limit the amount for the year to lesser of actual paid  or allocated US taxes on the same amount ( the allocation is based on ratio of foreign source income to  world income).  Some time it is better/more beneficial to just claim the safe harbor amount  ( while all income must be recognized , there is no requirement to recognize all taxes  paid to a foreign taxing authority  ).

Is there more i can do for you ?

Namaste ji

pk

[confusedabd]

Thank you, wow all I can say is this is all very very complicated. Let me read try to mimic the steps you described in Turbo tax and hoping I don't encounter anymore blockers. Than you for your continued help here. 

Do I need to indicate the foreign taxes already paid on the gov pension or is that something we need to enter in 1099-R?

I am curious about your response: "Some time it is better/more beneficial to just claim the safe harbor amount  ( while all income must be recognized , there is no requirement to recognize all taxes  paid to a foreign taxing authority  )."

I am trying to reflect my foreign income and foreign paid taxes if that helps with tax credits to eventually get health insurance from obamacare.

[pk]

@confusedabd ,  we are all volunteers here  helping other users.  So if I have answered your query, please consider  voting up the answer and accepting the answer -- this way the thread will close.  Of course ,  if you disagree, please tell me what more I can do to earn your acceptance.

Of course , I will still be able to see any more questions you put up on this thread or a PM to me and will do my best to help you through. 

Namaste ji

pk

[confusedabd]

Hello pk, thank you so much for getting back, appreciate your time. So, when I try to create a dummy 1099-R do I put indian pension in USD in Box 1 and 2a? What else do I need to fill out in 1099-R. I filled out Box1, 2a and Box 7 - choose J and completed the process, it said you may have to pay taxes. 

I followed below steps let me know if these look right:

First 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. Other taxable income?
7. Select YES
8. Description India pension
9. Amount, enter your amount
10. Continue

Federal step 3 if not taxable due to treaty
1. Miscellaneous Income, 1099-A, 1099-C, Start
2. Scroll to the bottom
3. Other reportable income, Start
4. Other taxable income?
5. Select YES
6. Description India  Tax Treaty nontaxable income
7. Amount, enter your negative amount,
8. continue