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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 14010
Experience:  15years with H & R Block. Divisional leader, Instructor
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During the period 1980-1997, I participated in a foreign "company

Customer Question

During the period 1980-1997, I participated in a foreign "company pension plan" (did not live in the US at that time) . Ending that employment, I settled in the US on a working visa and later obtained a Green Card status, paying taxes, contributing to 401k plans etc. At 60, I will be entitle to a lump sum pension from my prior employment (1980-1997) and my question is if I have to pay tax on this pension, transferring it in to the US ?
Submitted: 3 years ago.
Category: Tax
Expert:  Robin D. replied 3 years ago.

Robin D :

Hello and thank you for using Just Answer,
When you are a resident alien of the US you must report all your income. This means that even if you do not bring that money into the US you will need to report it and include the amount on your US tax return.

Robin D :

The taxable portion of it will be the amount that you did not pay into it. In other words, you will subtract your contributions and the rest will be taxable.

Robin D :

If you did not make contributions to the foreign pension then all will be taxable to you.

Robin D :

Please let me know, before you rate, if you have other questions about this.

Customer :

Located below on thye IRS website, that fits my case, and I want your comments to it, thanks

Customer :

Foreign Contributions while a Nonresident Alien
Your contributions and your employer's contributions are not part of your Cost if the contribution was based on compensation for services performed outside the United States while you were a nonresident alien and not subject to income tax under the laws of the United States or any foreign country (but only if the contribution would have been taxable if paid as cash compensation when the services were performed).

Customer : Ref: The Taxation of Foreign Pension and Annuity Distributions

International Tax Gap Series

October 2008

Robin D :

If the amounts placed in the pension would have been taxable to you had they been paid to you, then they are part of your cost.

Robin D :

How was this pension set up?

Robin D :

Was it like the US 401K?

Customer :

No, the ship owner had a pension plan set up for its ships officer, with Mercer in Brussel

Robin D :

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.

Robin D :

So unless there is a treaty that says this is not taxable at all then you would look to see how much is taxable.

Customer :

The plan is called: "Third Country National Pesnion Plan"

Robin D :

If the amounts that were put into the fund would have been taxable to you is given to you instead of being put into the plan

Robin D :

Ok one sec

Robin D :

Let me see if I can find anything about that as it relates to US tax

Customer :

An the option is "A one-off lump sum payment"

Customer :

Thought what the IRS states on it's web would be the US tax law ?; http://www.irs.gov/Businesses/The-Taxation-of-Foreign-Pension-and-Annuity-Distributions

Robin D :

Yes, that is the same info I advised in the beginning. The contributions you made ot the plan would be subtrac=ted and you would be taxed on the remaining amount.

Robin D :

Back then your income would have be not taxable to the US so the amount of your money that you put into the fund is what gets taken out from tax when you receive the distribution.

Customer :

So what would be the tax rate, 20%, paid withing 60 days ?

Robin D :

The tax rate will be dependent on your total income for the year of the distribution because it will be ordinary income.

Robin D :

The tax will be due on the due date of the return for the year of the distribution

Robin D :

You would not have to pay within 60 days of the distribution

Robin D :

I am not sure where the 60 days to pay your tax was advised.

Robin D :

Ok

Robin D :

The system shows that you left and actually went offline

Robin D :

If yo have more to add please do so

Robin D :

The system will advise that you have come back to complete your portion of our session.

Customer : Basically no specific, just a standard reply, thanka
Robin D :

That was very specific. The reply was not standard. You will have to report the total distribution and you will be taxed on any portion that you did not contribute. That is how the US tax system taxes the residents and citizens on this type of distribution. It is does not matter that you started this before you became a resident and Green Card holder.

Robin D :

I can understand your disappointment in having to be taxed but that is the nature of your residency in the US.