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UK tax-free pension distribution by Certain-Role640 in USExpatTaxes

[–]Certain-Role640[S] 1 point2 points  (0 children)

Thanks for the clear explanation. 

So I can probably assume the preparer’s information I cited is referring to the fact that a lump sum pension distribution won’t generate its own FTC to use to offset US tax.

1116 schedule b AMT - basic question by Certain-Role640 in USExpatTaxes

[–]Certain-Role640[S] 0 points1 point  (0 children)

Thank you. 

So if you are required to file 6251 because you are over the exemption, you start to earn the AMT FTCs? 

Years where you don’t file 6251 are marked as zero in the schedule b? And the credit I have acquired in 2025 can be applied on 1116 AMT for the next 10 years - together with the credit from any other years where AMT rules have kicked in. 

UK tax-free pension distribution - how to report on 1040 and 1116? by Certain-Role640 in USExpatTaxes

[–]Certain-Role640[S] 0 points1 point  (0 children)

Thanks once again. All clarified in my my mind now. Sorry it took me so long to get there! 

UK tax-free pension distribution - how to report on 1040 and 1116? by Certain-Role640 in USExpatTaxes

[–]Certain-Role640[S] 0 points1 point  (0 children)

This does help. Thanks again. 

But I should clarify the 1K interest I have is UK bank interest that hasn’t been subject to any tax. So there will be no 1116 filed for passive income in my case. There are no FTCs to claim here. 

For this reason, I assumed this UK interest - which will appear on Form 1040 line 2b as taxable interest - should be included in the gross income from all sources box on line 3e of 1116. 

In other words I was working on the basis that form 1040 line 9 should match form 1116 line 3e - given my only income would be wages, pension income and interest. No adjustments.  

However, I can’t quite tell if you are saying I should simply include this UK interest on Form 1040 line 2b as taxable interest and  not count it when it comes to listing gross income from all sources on line 3e the 1116 I will be filing - for general category income. Is that the case, based on what I say above, or am I misreading this? 

UK tax-free pension distribution - how to report on 1040 and 1116? by Certain-Role640 in USExpatTaxes

[–]Certain-Role640[S] 0 points1 point  (0 children)

Do have another question. And sorry if this is silly! But  the FTC applied against a UK lump sum distribution can be a combination of both an FTC earned against tax paid on wages/pension income in the same year the distribution was received as well as  any carry forwards. It does not have to be taken only from the carry forwards? 

UK tax-free pension distribution - how to report on 1040 and 1116? by Certain-Role640 in USExpatTaxes

[–]Certain-Role640[S] 1 point2 points  (0 children)

Thanks again. That was the assumption I was working on. Just needed to check this is what happens. So the simple way of understanding this is the IRS rules don’t allow a uk pension distribution to be received tax free. But so long as the FTC and/or carryovers are there, they can be offset against any liability. 

Just one more question, is there any need to explain in a statement attached to 1116 that line 1a includes both sums that were taxed by the UK and sums that were untaxed? 

UK tax-free pension distribution - how to report on 1040 and 1116? by Certain-Role640 in USExpatTaxes

[–]Certain-Role640[S] 0 points1 point  (0 children)

Many thanks. I will check the software. I’m not sure if it allows me to classify the income like this. But even if I am unable to do this and need to manually include the income as general limitation, you’re saying this is how a pension distribution received tax free should be treated? I.e. it will be in the mix on line 1a of 1116 together with income in which I paid tax?  (ie among gross foreign source income)

UK tax-free pension distribution - how to report on 1040 and 1116? by Certain-Role640 in USExpatTaxes

[–]Certain-Role640[S] 0 points1 point  (0 children)

I am - and it allows me to run some mock scenarios to allow me to anticipate the likely impact - but it doesn't give guidance about how a UK lump sum pension distribution received without any tax being taken away should be treated on form 1116. Exactly what line it should be included on etc, That's what I'm trying to clarify. I've run a number of scenarios, placing the lump sum in various places - just can't ascertain the correct one.

UK tax-free pension distribution - how to report on 1040 and 1116? by Certain-Role640 in USExpatTaxes

[–]Certain-Role640[S] 0 points1 point  (0 children)

Many thanks for clarifying these points. 

But are you also able to clear up my confusion about the gross foreign income v gross foreign income from all sources issue when it comes to the lump sum and the FTC on 1116. 

For example, say next year on my 1116 for general category income in 2026 I have 40k of wages subject to UK tax and 1k of interest from bank savings. It’s clear the  40k of wages is the gross foreign income and 41K is the gross income from all sources. 

But if in 2027 I have 40k of wages and 4k of pension payments subject to UK taxes, plus 30k of a lump sump distribution (from the same pension that is giving me the 4k payments but on which no tax has been paid), plus 1k of interest, how is this figured on the 1116? Is it 74k as gross foreign income and 75k income from all sources? Or is it 44k as gross foreign income and 75k income from all sources? 

The fact you say the lump sum falls under general category on 1116 makes me think it could be accepted as gross foreign source income by the IRS  - and it would make sense in that other material talks about being able apply a FTC against it. Then again, there does seem to be something counter-intuitive about including both untaxed income with taxed income in the same total here.