Israeli Military Pension Received

[klyonscpa]

I was wondering if Israeli Military pension received by veteran of the Israeli Army and a US citizen living in the US is taxable in the US and including as income?

Anyone know or have a code or publication reference I can refer to?

[ATSMAN]

Check the Treaty Provisions

http://www.irs.gov/Businesses/International-Businesses/United-States-Income-Tax-Treaties---A-to-Z

This is a link to US tax treaties with foreign countries and taxation. Generally speaking a US citizen is subject to taxation of worldwide income subject to the limitations.

There is another IRS pub ( I forget the #) that talks about taxation of foreign pensions.

[mastertaxguy]

Taxation of Foreign Pensions

I was wondering if Israeli Military pension received by veteran of the Israeli Army and a US citizen living in the US is taxable in the US and including as income?

Anyone know or have a code or publication reference I can refer to?

1. From the IRS Web Site:

General Rule: Treaties—Pension/Annuity Articles
As a general rule, the pension/annuity articles of most tax treaties allow the country of residence (as determined by the residency article) to tax the pension or annuity under its domestic laws. This is true unless a treaty provision specifically amends that treatment. Some treaties, for example, provide that the country of residence may not tax amounts that would not have been taxable by the other country if you were a resident of that country. In some cases, government pensions/annuities or social security payments may be taxable by the government making the payments. There also may be special rules for lump-sum distributions. You need to look at each treaty carefully.


2. Looks like some (billable?) research time for you.

3. Retirement benefits are not earned income, so if subject to US tax (check the treaty) there is no exclusion available. Might be some foreign tax credit if Israel taxes the pension benefit.

4. May also be an issue with any contributions made by the TP. IRS Publ 575 page 10 has a brief explanation.

5. TTB 14-16 has some general statements not specific to pensions.

6. 1975 Tax Treaty US/Israel explanation, under ARticle 22, has this language:

Under this Article,[22] wages, salaries, and similar remuneration, including pensions,
annuities, or similar benefits, paid from public funds of one Contracting State to a citizen of that
Contracting State, or to a citizen of a State other than a Contracting State who comes to the other
Contracting State expressly for the purpose of being employed by the first-mentioned
Contracting State, for labor or personal services performed as an employee of the national
Government of that Contracting State, or any agency thereof, in the discharge of functions of a
governmental nature will be exempt from tax by the other Contracting State. If the citizen
becomes a citizen of, or acquires immigrant Status in, the other Contracting State, that other
Contracting State may tax the individual without regard to this Article. See paragraphs (3) and
(4)(b) of Article 6 (General Rules of Taxation).

7. Writing only for myself, and depending on ALL the facts and circumstances, I would probably attach a statement excluding the amount and citing the Treaty provision as an election. I would take the position that such amounts are also excemp from any State or municipal income taxes even in New York or California. I would not even report it line 21 and adjust it out on line 36 or whatever the last line is on the front of the 1040.