Foreign Pension

[OmaOpa]

What is the name of your state? GEORGIA

Are quarterly pension disbursements from a foreign country to be included in "taxable earnings" on your 1040 form?

My neighbor gets a pension from Germany. He has been a US citizen for 30 years, but receives pension money from prior work service in Germany. The money is direct deposited by a German Bank to a US bank, where it is converted automatically from Euros to dollars, and then deposited quarterly in his US savings account. Must this be claimed as "taxable income" when doing your annual 1040-EZ form?

Curious... because we know of at least a dozen French, German, Italian immigrants, now all citizens, who receive foreign income through pensions. None claim it as income... but they all live in fear of retribution from the IRS.

What is the Law?
Thx.

 

[seniorjudge]

What is the name of your state? GEORGIA

Are quarterly pension disbursements from a foreign country to be included in "taxable earnings" on your 1040 form?

My neighbor gets a pension from Germany. He has been a US citizen for 30 years, but receives pension money from prior work service in Germany. The money is direct deposited by a German Bank to a US bank, where it is converted automatically from Euros to dollars, and then deposited quarterly in his US savings account. Must this be claimed as "taxable income" when doing your annual 1040-EZ form?

Curious... because we know of at least a dozen French, German, Italian immigrants, now all citizens, who receive foreign income through pensions. None claim it as income... but they all live in fear of retribution from the IRS.

What is the Law?
Thx.

I am not a tax attorney. Call the IRS for their opinion.

However, my understanding is that you must report unearned income, such as interest, dividends, and pensions, from sources outside the United States unless exempt by law or a tax treaty.

 

[abezon]

Foreign pensions must be reported as pension income on the 1040A or 1040, unless the pension is specifically exempted from US taxation by a tax treaty. Pensions are not earned income, so he can't use the 1040-EZ. Even if the treaty has a pension clause that seems to help your friend, since he is a US citizen, he cannot invoke the treaty unless it expressly allows US citizens to invoke that particular clause.

Presumably Germany is withholding taxes at source. Your friend must report the gross pension before taxes, even though he doesn't receive the full amount. He can claim a foreign tax credit on his US return. However, since Germany has a higher tax rate & the US foreign tax credit sucks, he probably won't get a tax credit for the full amount Germany kept.

He may be able to exclude some of the pension income if the work done in Germany was done before he became a US citizen or resident. See a tax pro with international experience for help. He can read the Germany treaty at www.irs.gov.