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I have a consultancy job from an overseas company (UK). I…

I have a consultancy job...
I have a consultancy job from an overseas company (UK). I get a paid a fee which I report to the IRS. Now this oversea company want to include me in their group pension plan. I don't have to pay anything into this and I suppose when I retire it might pay me a few dollars. I don't know how much the company will pay into the plan on my behalf but as an example lets say its $5,000 per year.1. do I need to report the $5,000 to the IRS and if so which part of the 1040.
2. I believe I will have to report it to FinCen
3. in the future if I get a pension payment I expect that is reported to the IRS.This is probably an approved scheme in the UK for UK tax purposes but not approved in the US.
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Answered in 36 minutes by:
3/19/2018
bkb1956
bkb1956, Finance Enthusiast
Category: Finance
Satisfied Customers: 6,374
Experience: IRS Enrolled Agent, 20+ years of experience in tax preparation with associated finance experience.
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Welcome back to Just Answer!

1. As to the employer contributions,

Since foreign pensions aren’t qualified plans, employee contributions do not reduce the employee’s taxable US income, and employer contributions to a foreign pension fund increase the employee’s taxable income. You will include the employer contribution amount on Line 21 of your 1040.

2. As to the other forms that may be required,

  • Form 3520 – This form is required if you have any transactions with a foreign trust
  • Form 3520-A – This form is required for trustees, and includes information the grantor needs in order to file Form 3520
  • Form 8621 – This form is required if PFIC rules apply
  • Form 8938 – This form is required to report all foreign financial assets, including foreign pensions, if you meet the filing threshold
  • FinCEN Form 114 – This form, also known as FBAR, requires the reporting of foreign bank and financial accounts if you meet the filing threshold

The filing requirement for FinCEN Form 114 is if the value is more than $10,000 during the year.

The filing requirement for Form 8938 is:

  • Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.

  • Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements

3. Yes. Any pension distributions will be reported on your tax return.

Please let me know if I can assist you further.

Thank you and best regards,

Barb

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Customer reply replied 4 months ago
This means our example of $5,000 contribution by the company to the pension is taxed TWICE on me. Once when the money goes into the plan and once when the money comes out in the form of a pension payment. Arn't there rules against this kind of double taxation. Traditional & Roth IRA's and don't have this kind of double taxation.

Under US law, you’ll end up paying US taxes twice on FOREIGN pension accounts – when they accrue and when they are paid out. Note that there are tax treaties with some countries, which makes it easier for Americans to participate in foreign pension plans without incurring double taxation.

I'll check the US/UK tax treaty and let you know in a few moments.

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From Article 17 of the US/UK Tax Treaty:

ARTICLE 17 Pensions, Social Security, Annuities, Alimony, and Child Support

1. a) Pensions and other similar remuneration beneficially owned by a resident of a Contracting State shall be taxable only in that State.

b) Notwithstanding sub-paragraph a) of this paragraph, the amount of any such pension or remuneration paid from a pension scheme established in the other Contracting State that would be exempt from taxation in that other State if the beneficial owner were a resident thereof shall be exempt from taxation in the first-mentioned State.

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Customer reply replied 4 months ago
I see you are an enrolled agent. Have you seen someone being taxed twice? So hard to believe.

In this instance, because a foreign pension is NOT a qualified plan in the eyes of the IRS, the employer contributions to the pension are taxable, and the distributions are taxable in the US.

There are instances where there is double taxation on the same income.

bkb1956
bkb1956, Finance Enthusiast
Category: Finance
Satisfied Customers: 6,374
Experience: IRS Enrolled Agent, 20+ years of experience in tax preparation with associated finance experience.
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