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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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FGTS and taxes in the USA

Customer Question

FGTS and taxes in the USA
Submitted: 7 months ago.
Category: Tax
Expert:  Lev replied 7 months ago.
And your related question is?
Customer: replied 7 months ago.
If a client leaves Brazil and removes his FGTS funds from the country and brings them into the US, the assets are not taxed in Brazil but it is unclear how it is treated in the USA. The client is an employee for Pfizer and was terminated without cause so are there any provisions to move the money here tax free?
Expert:  Lev replied 7 months ago.
Assets are NOT subject to income tax in the US.ONLY income generated on these assets will be taxable.
Customer: replied 7 months ago.
Can you send me documented proof to back up this response?
Expert:  Lev replied 7 months ago.
Yes - I will provide you references.
Expert:  Lev replied 7 months ago.
or definition of taxable income, see section 63.https://www.law.cornell.edu/uscode/text/26/63(a) In generalExcept as provided in subsection (b), for purposes of this subtitle, the term “taxable income” means gross income minus the deductions allowed by this chapter (other than the standard deduction).As we see - assets are NOT included into taxable income.See section 61 regarding what items are included into gross income.https://www.law.cornell.edu/uscode/text/26/61and as we see - assets that you own are NOT included...I appreciate if you take a moment to rate the answer.Experts are ONLY credited when answers are rated positively.If you still have any doubts, need clarification - please be sure to ask.I am here to help you with all tax related issues.
Customer: replied 7 months ago.
Lev, The references provided do not speak to our topic on moving FGTS into the U.S., my client is now a Green card holder since he declared his termination with Pfizer in Brazil and will pay taxes in the U.S. going forward
Expert:  Lev replied 7 months ago.
References are related to the definition of gross income and taxable income.That is not related to the residency status of the taxpayer.As a green card holder - the taxpayer is considered a resident alien - and as such is taxed on ALL worldwide income - but that is not related whether certain income is taxable or not.The DISTRIBUTION form retirement fund is classified as pension - and according to section 61 such distribution is included into gross income.HOWEVER...Because contributions into the FGTS are considered compensations for services performed before the taxpayer moved to the US - these amount are not taxable - either you keep them in that fund or distributed to you.But the interest earned on that account is not excludable - regardless if it was distributed or not - and should be taxed as interest income in the year it was credited to the account..Nevertheless - that is NOT related whether the money are transferred to the US or not - the distribution is taxable when distributed regardless how the money are used.The transfer itself is not taxable event.In additional - we need to verify if that distribution is taxable in Brazil - if year - the taxpayer may claim a foreign tax credit on the US tax return - effectively eliminating double taxation and possibly eliminating US tax liability on that income.
Customer: replied 7 months ago.
According to the client, it is confirmed the ENTIRE distribution is not taxed in Brazil because he was terminated WITHOUT cause. Rehired by the same company in the USA for continuation of his benefits and Pension from Pfizer. So are you saying the contributions to FGTS are NOT taxable when moved to the USA and the interest on those contributions over the years are NOT?
Expert:  Lev replied 7 months ago.
Whether that distribution is taxable in Brazil or not - that is NOT relevant for US tax determination.If that is an ASSET owned by the taxpayer - he/she may move that asset as desire - and there is no taxable income.If that is a pension or annuity - there are special rules to determine the taxable portion.My assessment is that the FGTS was funded from compensations for services performed before the taxpayer moved to the US - and therefore these amount are not taxable when distributed.But the interest earned on that account is not excludable - regardless if it was distributed or not - and should be taxed as interest income in the year it was credited to the account - not in the year of distribution.Thus for instance for 2015 if the taxpayer was a resident alien in the US - and interest was credited to he FGTS account - that interest must be reported on the US tax return.But distributing assets by itself is not taxable.