Taxes on Superannuation Fund from India

[zz10957]

Hi

I am a resident alien on an H1 visa. About a decade back when I worked in India, my employer had a superannuation fund to which I contributed and it had become dormant once I moved to US. Last year they reached out to me about it. In the end, I took a lump sum payout of 50% of the total amount and the rest I get on a monthly basis. Both the lump sum payout and the monthly payments are being taxed in India at 30%.

From my research, the superannuation sounds like a pension plan but I'm not certain. I have the following questions:

1. How should I report these income?

2. Can I claim foreign tax credits on these? 

The taxes paid on all of these is less than $600. How do I go about this in TurboTax?

[ThomasM125]

Since the income is taxable in India I assume it would be taxable in the US if earned here, so you would have to report it as such. From what you describe it would be treated as pension income, which you can report in TurboTax by preparing a substitute Form 1099-R as follows:

1. Find the Retirement Plans and Social Security menu option
2. Start or Update IRA, 401(k), Pension Plan Withdrawals (1099-R)
3. Choose Add Another 1099-R
4. Choose I'll type it in myself
5. On the screen that says Tell Us Which 1099-R You Have choose I need to prepare a Substitute 1099-R

Enter the distribution in box 1 and 2 and choose code 7, normal distribution, for the type of distribution. You are entitled to a foreign tax credit on up to the amount of US tax you pay during the year on your foreign income.

To apply for a credit for foreign taxes paid or accrued during the year:

1. From the Federal section of TurboTax, go to the Deductions and Credits section

2. Find Estimates and Other Taxes Paid

3. Choose Foreign Taxes

4. Indicate that you paid foreign taxes or have credits from prior years

5. Work through the section until you see an option to take a deduction or credit, the credit is usually better

6. Complete the rest of the section

[zz10957]

Thank you for your response. I was able to get to the substitute flow and it did generate Form 4852. But the problem was during the final validations, TT complains that the EIN of the pension payer is missing in 1099-R. I don't have an EIN because the pension payer is a company in India. Do you know if I did something wrong or if I can ignore the validation and continue with my filing?

[AmyC]

I believe you may fall under article 20 of the tax treaty but without knowing more, I suggest you check. The program is no longer allowing the 1099-R through so you will need to work around the issue. You may need to finish up your state before fixing the federal. Plus, you may need to file Form 1116 foreign tax credit or Form 8833 treaty exemption.

For the state: 

1. Each state handles income differently. If this is treaty income, it may be exempt or maybe not. 
2. Each state handles pension income differently, this needs to be addressed and usually the money needs to be in the 1099-R position to get this right on the state.

If you want to reply with the state, we may be able to help. See How do I contact my state Department of Revenue?

Once the state is right, move to federal.

1. Delete the 1099-R 
2. Enter the income as other income. 
3. If it is treaty income and not taxable:
   1. subtract the income back out and note that it is treaty income. 
   2. If it is treaty income, do you need to file Form 8833? Let's find out.
4. If it is not treaty income, file form 1116 for a tax credit for tax paid to India on the same income.

Federal step 1

Delete the 1099-R

If you are using:

• Online: see How do I view and delete forms in TTO?
•  Desktop: If you are working in the cd/download TurboTax program:
  1. On the top right, there is a FORMS button. 
  2. Click on FORMS.
  3. Locate the form you want to delete.
  4. Click on the form name.
  5. Below the form, bottom left, select DELETE FORM button. 

Federal step 2

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
Subtract various expenses
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

Step 3 part 2:  Do you need to file Form 8833?

Claiming Tax Treaty Benefits

The payee does not have to file Form 8833 for any of the following situations:

1. The payee can claim a reduced rate of withholding tax under a treaty on interest, dividends, rent, royalties, or other fixed or determinable annual or periodic income ordinarily subject to the 30% rate.
2. The payee can claim a treaty exemption that reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions, or income of artists, athletes, students, trainees, or teachers. This includes taxable scholarship and fellowship grants.
3. The payee can claim a reduction or modification of taxation of income under an International Social Security Agreement or a Diplomatic or Consular Agreement.
4. The payee is a partner in a partnership, or a beneficiary of an estate or trust and the partnership, estate, or trust reports the required information on its return.
5. The payments or items of income that are otherwise required to be disclosed total no more than $10,000.

Step 4 - if income is taxable to the US. You probably want to take the credit. Rare is the person that can use the deduction. It doesn't hurt to try it both ways.

Where do I enter the foreign tax credit (Form 1116) or deduction?

Foreign Tax Credit | IRS


 

[zz10957]

Thank you so much Amy. The state would be California. How do I figure out if it is treaty income. And tbh, I don't care a lot about exemption since the amount is about $1500 which is not a lot. I've already paid taxes in India,  so I just want to declare it (so I don't get into trouble later) and take the tax credit here in US. I'd def appreciate help with the steps for filling the forms for state!

[dale-janice]

After years of misery and many phone calls over this EIN for a foreign government payer of the equivalent of our social security--in my case, from Japan--the IRS finally referred me to a dept. with a name something like "Difficult Questions," where I was told that there IS no such thing as an "Payer's Federal Identification Number" for a foreign government.  It makes sense, since a social security type "pension" is not remuneration for doing a job.

That knowledge, however, doesn't save the poor TurboTax user from this line getting pinked out unless he/she happens to enter the right 9 digits.   Some  years, I have found helpful suggestions from Turbo Tax users.   If I remember right, for a while, 12-9999999 worked, then 12-3456789, but for the 2023 return, it didn't.  It was purely by guessing that I hit on WHAT HAS WORKED THIS YEAR: 12-1111111.   I just now used it and was able to e-file both fed. and state returns. 

Why Turbo Tax would let a problem like this torment users for years (A pinked-out line forces you to file by snail mail, which can have its own problems) is beyond me.   If only we receivers of this special sort of pension could simply right-click on the line and choose to leave it blank!  

[TaxTax2018]

Hi Amy,

Thanks for your article it was super helpful.

As the India Employee Provident Fund (EPF) become dormant, I had to withdrew whole of amount in 2023, which exceeds $10000. As I understand (google search) that withdrawals of Employee Provident Fund are not taxable under the US/India treaty of Article 20(2). Now can you guide if I still need to file 8833, if yes, what would be the verbiage to fill that form (nothing available in google)? Also, following your step "Federal step 3 if not taxable due to treaty" I see that I need to mark the EPF funds as taxable which is not and TT says that I now owe taxes instead of refund.

Thanks in advance for your response.

[AmyC]

A positive income with a negative matching amount should zero out rather than cause tax. I can only recommend the instructions, About Form 8833, Treaty-Based Return Position Disclosure.

You may need to file more forms with the extra income. Here is a comparison of the FATCA (Form 8938) and FBAR requirements. The FBAR is not part of the tax return. It is filed separately. File FBAR through the Financial Crimes Enforcement Network.

Good luck!  @TaxTax2018