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Do I owe taxes on pensions paid from Finland and Germany_

Hi This is Jorg Willems JA...
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Customer: Do I owe taxes on pensions paid from Finland and Germany_
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10/5/2017
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
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Hello. Thank you for choosing this Q&A service for assistance. My name is Angela. I will be assisting you.

Are you a U.S. resident or citizen? The U.S. has a tax treaty between both Finland and Germany that may eliminate taxation on the pensions. Read below for general information regarding taxation of foreign pensions.

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While US employer sponsored pension plans qualify for special tax treatment under the Internal Revenue Code, that is often not the case for U.S. citizens and green card holders who have worked for foreign employers and participated in their foreign pension plan. These foreign pension plans normally have beneficial tax treatment under local law, but do not meet the U.S. qualification rules.

When a U.S. citizen has participated in a foreign pension plan, it is likely that the plan has not meet the Internal Revenue Code's qualification rules. Therefore, the U.S. citizen in most cases will subject to U.S. tax on the contributions to the plan and the subsequent growth in said plan. For U.S. citizens that live in a jursidiction that imposes an income tax at rates higher than the U.S. rate, the employee more than likely will have accrued "foreign tax credits" that may be used to offset the U.S. tax on foreign sourced income.

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Customer reply replied 2 months ago
I am German with Green Card. I worked 24 years in the USA and get Soc. Secr. check. I lived many years in Finland and I get legal retirement and pay taxes in Finland, Same in Germany.

Hello again. I will address the tax treaty rules for both Finland and Germany.

FINLAND:

1. Subject to the provisions of paragraph 2 of Article 19 (Government Service) a) pensions and other similar remuneration derived and beneficially owned by a resident of a Contracting State in consideration of past employment shall be taxable only in that State; and b) pensions and other payments under the social security legislation of a Contracting State and, where that Contracting State is the United States, other public pensions, paid to a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned State.

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a) Any pension paid by, or out of funds created by, a Contracting State or a political subdivision, statutory body or local authority thereof to an individual in respect of services rendered to that State, subdivision, body or authority shall be taxable only in that State. b) However, such pension shall be taxable only in the Contracting State of which the individual is a resident if he is a national of that State

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TRANSLATION: You are not a national of the U.S., therefore your pension is not taxable in the U.S.

REFERENCE SOURCE:

https://www.irs.gov/pub/irs-trty/finland.pdf

Articles 18 and 19 of the treaty

I will send you the information regarding Germany shortly.

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GERMANY:

1. Subject to the provisions of Article 19 (Government Service; Social Security). pensions and other similar remuneration derived and beneficially owned by a resident of a Contracting State in consideration of past employment shall be taxable only in that State.

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a) Wages, salaries, and similar compensation and pensions paid by the United States or by its states or political subdivisions to a natural person, other than a German national, shall be exempt from tax by the Federal Republic of Germany.

b) Wages, salaries, and similar compensation and pensions paid by the Federal Republic of Germany or by its Laender or by municipalities, or pensions paid by a public pension fund thereof to a natural person, other than a citizen of the United States and other than an individual who has been admitted to the United States for permanent residence therein, shall be exempt from tax by the United States.

TRANSLATION: The pension from Germany is taxable here in the states.

REFERENCE SOURCE:

https://www.irs.gov/pub/irs-trty/germany.pdf

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Customer reply replied 2 months ago
Thank you for your help! Regards Jörg Willems

Hello again. You are very welcome. Thank you for the positive rating. I do appreciate it.

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