Category: International Tax
If you or your spouse have ever worked outside the U.S., you may have an employer pension or a retirement or private savings plan in another country (pensions or plans). Unfortunately, for the U.S. taxpayer, a pension or plan in another country will not have the same tax benefits as a qualified retirement plan does in the U.S. This can lead to an unwelcome surprise for those with a foreign pension or plan in terms of U.S. income tax and foreign disclosure reporting obligations.
U.S. taxpayers with pensions or plans are subject to U.S. income tax and foreign disclosure reporting. U.S. taxpayers include U.S. citizens, U.S. permanent residents and Expats, no matter where they live. Pensions or plans that are tax-deferred or tax-free in the other country are also subject to reporting. For example, Canada and the U.K. offer Individual Savings Accounts (ISAs). To encourage personal retirement savings investment earnings in such accounts are tax-free. However, the tax-free status is not recognized for U.S. tax purposes. Interest, dividends and capital gains and losses from the ISAs must be reported on the U.S. taxpayer’s income tax return.
Pensions and plans are also subject to U.S. foreign disclosure requirements even if there are no distributions. This includes the disclosure of the owner’s name and address and the payer’s name, address and value of the pension or plan on the Foreign Bank Account Report and/or Form 8938 Statement of Specified Foreign Financial Assets.
There are ways to avoid double taxation by both the U.S. and the other country on foreign pensions and plans:
There is a benefit under the U.S. income tax treaties with Germany and Canada. Social security-type pension payments are taxed in the same manner as U.S. Social Security which results in only a portion of the payments being subject to U.S. tax.
States may or may not allow treaty benefits. This could result in a foreign pension not being subject to federal tax but nonetheless subject to state tax.
Some foreign pensions may be subject to a special rule that would require reporting on Form 3520 Annual Return to Report Transactions with Foreign Trusts. As an example, Superannuation Funds in Australia may require foreign trust reporting.
Before moving from one foreign pension or plan to another, or moving the money to another country or to the U.S., U.S taxpayers as well as Expats living abroad should consult with a U.S. tax professional who is knowledgeable and can advise about the tax consequences and foreign disclosure reporting requirements. Otherwise, such a move could result in the balance of the account immediately becoming subject to U.S. tax. Likewise, individuals who are planning to become U.S. permanent residents (Green Card Holders) should consult with a U.S. tax professional and understand how their foreign pensions or plans will be treated for U.S. tax purposes.
The rules for reporting foreign pensions and plans are complex. A U.S. taxpayer that has failed to report a foreign pension or plan may benefit by participating in a voluntary compliance program. The International Tax Team at Kerkering Barberio specializes in voluntary compliance filings including preparation of prior years’ income tax returns, international tax forms and foreign disclosures. To discuss your international tax and financial planning needs, contact Phoebe Trumpler, CPA at (941) 365-4617 or .
Update as of 9.15.2020
Dear Clients and Friends of Kerkering, Barberio & Co.,
Kerkering, Barberio & Co. is taking a cautious and methodical return to our prior state. Our offices are open by appointment only. Please note that all staff and visitors in our office must wear a mask. If you do not have one, we will provide one.
To drop off documents, the following still apply:
Kerkering, Barberio & Co. is committed to our continued operations for the benefit of our clients and team members. If you would like to schedule an on-site appointment, please contact your Kerkering Barberio representative.
We appreciate your continued support. If you have any questions, please don’t hesitate to contact us at 941-365-4617.
Robert J. Lane, CPA
President and Managing Shareholder