Last week I asked what to do with pension income of a couple from the UK who are now legal residents of the US. It was suggested that I override the 1099-R screen and just enter the pension amounts on the 1040. Okay, did that, then entered the amount withheld by the UK on p.2 of the 1040. Because of their low income, they will get a refund, but it seems weird that the US would refund money that the UK withheld. I tried to find the answer in the IRS pubs on tax treaties, etc., but I mostly just got more confused. I find a lot of info for US citizens working abroad, but very little for resident aliens working in the US receiving passive foreign income. Does anybody know what I should do in this case?
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I don't know how to handle a UK pension for US residents on their 1040. But, did you put their foreign tax withheld on page 2 as foreign taxes paid or as US taxes withheld? Someone will jump in here Monday morning who knows what to do. If not, contact your software company to find how to enter both the foreign pension income and withholding.
It's April. I'd put them on extension. -
Not entered on 1040 as tax withheld; US will not refund.
Resources to get you started: Pub 519 & Form 1116. They'll probably help. (Take the foreign tax paid as a credit or a deduction.) Take Rita's advice and extend. Good Luck!Comment
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Thanks for the advice, especially about filing an extension. I'll surely do that! Seems like the more I read about this, the more confused I get. It may take some time to study it so I'm doing it right.
My client doesn't have enough income to have a tax liability, so I suppose this means filing Form 1116 (which is incredibly complicated as far as I can tell) and doing a possible carryover to future years. Is that right?Comment
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Use a Form 1116
That is likely your only choice.Originally posted by manyhappyreturns View Post
Let the software handle everything.
And, FWIW, if circumstances do not change there is a good chance your client may NEVER recover the foreign tax withheld.
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Yes, I'm thinking you are right that the TP will never recover the UK tax withheld. I'm thinking maybe I should leave it out of the picture and just report the income. He's not having to pay US tax on it anyway because his taxable income is zero. Seems like I can do that if it's okay with my client.
The Social Security tax is the other problem. He's paying UK National Tax, which is the equivalent, and then he has SE tax on his US return. In some publication I read (I've done a lot of reading about this!) it says there are ways to avoid being double-taxed, but I haven't found where it actually tells me how to do it.
So, I'm thinking I should just file an extension and do more research, but if anybody has an answer for me, please post. Thank you!Comment
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