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As a U.S. tax resident, you are taxed on your worldwide income. This means that if you receive income from UK sources like employer-sponsored or personal/private pensions, those payments are taxable in the United States as ordinary income. The IRS typically does not distinguish between domestic and foreign pension income: once distributions are taken, they must be reported on your annual IRS Form 1040. The precise amount to report is the gross income received during the tax year, regardless of whether some of it was already taxed abroad.
Key point: If UK taxes were paid, you might be able to claim a foreign tax credit or deduction to help avoid double taxation (see IRS guidance: Foreign Tax Credit). However, in practice, pension income is often only taxable in one country due to treaty provisions (explained below).
Example:
The UK State Pension is similar to U.S. Social Security, funded through National Insurance contributions in the UK. Some assume it's tax-exempt in the U.S.; however, this is not the case.
The IRS treats UK State Pension payments as taxable ordinary income. Even if no UK taxes are paid on it, you must report it to the IRS.
Example:
International tax treaties are critical when cross-border income is involved. The U.S.-UK Income Tax Treaty particularly addresses pension and social security income in:
Summary: Article 17 provides that payments under a pension plan are taxable only in the state in which the recipient resides. However, because the U.S. taxes its residents on their worldwide income, this provision does not exempt U.S. citizens from U.S. taxation of UK pension income.
Takeaway:
Reference: Read the treaty here: U.S.-UK Income Tax Treaty (IRS)
Article 18 stipulates that social security pensions are taxable only in the country of residence. Thus, if residing in the U.S., only the U.S. can tax the UK State Pension.
Practical implication: U.S. residents receiving a UK State Pension must report it to the IRS.
Reference: Official guidance available in the same treaty link.
A Common Pitfall:
The treaty’s promise of 'taxation only in the country of residence' can mislead some into thinking they’re exempt from all taxes. For U.S. citizens, worldwide income rules require declaring everything, and the treaty helps avoid double taxation where applicable.
All foreign pension income must be reported on Form 1040:
Tip: Use the IRS’s yearly average exchange rate (see IRS exchange rates) to convert pounds to dollars.
If foreign financial accounts, including UK pension accounts, have an aggregate value over $10,000, file the FBAR electronically via the Financial Crimes Enforcement Network (FinCEN).
If foreign financial assets exceed specific thresholds, include Form 8938 with your tax return.
Tip: Both FBAR and Form 8938 may be required, and filing on one does not preclude the other. Learn more at IRS Form 8938 Instructions.
False. All pension income from the UK must be reported to the IRS and is generally subject to regular income tax rules.
False. Treaty benefits are not automatically applied. You must actively claim any benefit.
False. Paying UK tax does not eliminate U.S. tax reporting obligations, though you may qualify for a foreign tax credit.
- Used when your U.S. tax return position is based on U.S. income tax treaties, reducing your taxes.
- Disclose the article of the treaty utilized, describe the position, and estimate its impact.
- Attach Form 8833 to your Form 1040, and review Form 8833 Instructions.
Note: Completing Form 8833 for treaty claims clarifies your intentions and improves audit risk management.
Specializing in individual and small business tax for globally mobile Americans, we offer:
Navigating the U.S.-UK tax landscape's unique challenges, we can help you achieve full compliance and optimal outcomes.
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This article is intended as general informational guidance on U.S. tax obligations for UK pension and State Pension income. Every taxpayer’s situation is unique, and circumstances can significantly alter filing requirements and available benefits. Consult a qualified tax advisor or CPA with expertise in international tax before making decisions or filing your tax return.
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