Question

Where to enter foreign pension income and foreign tax credits?

Forum|Forum|6 years ago
June 6, 2019
6 replies
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My wife receives a pension from Brazil government and a private pension from Brazil.

TurboTax Deluxe Online

PopeyeTheSalior

To enter foreign pension in TurboTax online program, you will need to create a substitute form 1099-R.

Here are the steps:

1. Sign into your account and select Take me to my return

2. At the right upper corner, type in 1099r, then Enter

3. Select Jump to 1099r

4. On screen, Your 1099-R, answer Yes and select Continue

5. Next screen, Choose your bank or brokerage, select I'll type it in myself

6. On the screen Tell Us Which 1099-R You Have, check the box

I need to prepare a substitute 1099-R and follow the prompts. See attached screenshot

As to the Federal ID, if your foreign issuer does not have the ID number, try entering nine 9s. If electronic errors occur due to 1099-R data entry, enter the pension under Miscellaneous income, see below instructions. As long as IRS has the pension reported and included in total income, it is not problematic.

1. In the program, from the top, select tab Federal taxes / Wages & Income -Less Common Income ( very last section on the screen)

2. Select Miscellaneous Income , 1099-A, 1099-C- Start

3. Select Miscellaneous Income- Other income not already reported on a Form W-2 or Form 1099- select Start to information

To enter a foreign tax credit on form 1116, go to:

1. After sign into your account, select Take me to my return

2. At the right upper corner, in the search box , type in foreign tax credit and Enter

3. Select Jump to foreign tax credit

4. Start with screen Foreign Taxes and select Continue to follow prompts.

D

dburnt

It should be noted that Turbo Tax does not accept 9's for electronic filing, nor does it accept the payer ID on my foreign slip. Also, by the time you figure out that the 9's don't work (i.e. when you try to file electronically), you have to completely start the return over again to back out the information you just entered or, as I had to (2 years running) file by mail. Turbo Tax needs better support for foreign pension income.

S

sfehervari

Yes, for the last few years, 99's have been accepted. It is very frustrating this is not the case this year. How USA centric this is. Last year of using Turbo Tax? Possibly!

N

NachAmerika1976

I receive monthly payment from German Pension

F

fjk56

Me too. First year for me and not sure how to proceed. Can you explain your process?

AmyC

Foreign pension income, first determine if it is taxable income to the US based on the treaty. See United States Income Tax Treaties.

If the income is taxable to the U.S.:

You need to enter the income and there are a couple of ways, including the one described above your question.
then you can proceed to enter the taxes paid as described above.

If the income is not taxable to the U.S.:

enter the retirement income - again as described above or a substitute 1099-R.
you will need to enter the income under misc income as a negative amount. To do that:
1. go to the income section,
2. scroll to the bottom option, Miscellaneous Income.
3. select,
4. scroll to the bottom again, Other Reportable Income,
5. select.
6. Enter the income as a negative and the description (name your exempt country, like Netherlands) treaty.

For further information on tax treaties, refer to the International Tax page of the U.S. Department of the Treasury.

@fjk56

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K

KarenJ2

To enter a foreign pension in TurboTax online program, simply follow these steps:

After you sign into your account, select

Take me to my return
In the program, from the top, select tab Federal taxes / Wages & Income -Less Common Income at the bottom of the screen
Select Miscellaneous Income , 1099-A, 1099-C- Start
Select Miscellaneous Income- Other income not already reported on a Form W-2 or Form 1099-
choose Start to enter information

To report the foreign tax paid on your pension for foreign tax credit:

Enter foreign tax credit in the search box at the top of the page and click the Jump to link
Click 'Yes" you paid foreign taxes
Click through the screens regarding foreign interest and dividends
Click yes that you have reported all your foreign income already in TurboTax
Click that you want to take a credit
Answer question about the Simplified Limitation Election
Choose income type for pension - it will be Passive
Add the name of your county
Enter description -XXX pension
Enter Pension Income amount that you previously reported in another section of TurboTax
Enter your taxes you paid on your foreign pension in the box "Other income"
Continue through the foreign tax credit screens until done.

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E

eep_1948

IRS Form 4852 Line 6 'Employer's or payer's TIN (if known)' does NOT require the entry of a TIN or any other number, when the payer actually doesn't have one. The IRS accepts Form 4852 with line 6 left BLANK.

In 2017 when TurboTax started choking on all zeros for Form 4852 line 6, I contacted an IRS help agent for advice. The agent instructed me NOT to enter a bogus TIN when the payer doesn't have one, just to make TurboTax happy. He instead instructed me to just leave line 6 blank.

The problem is: TurboTax chokes when line 6 is left blank, signaling an error that prevents completing or e-Filing the return.

Advising users to report foreign pension income as 'miscellaneous' may allow TurboTax to avoid fixing this Form 4852 problem when the entire gross pension amount is taxable. But what about when the gross pension amount is not all taxable, because of a cost basis?

Every year I file Form 4852 because I do have a cost basis in the foreign pension. The pension's gross distribution and taxable amount are reported on Form 4852 lines 8a and 8b respectively. So every year since 2017 I have filed a PAPER federal return (while ignoring the TurboTax error resulting from blank line 6 on Form 4852) because TurboTax refuses to e-File the return, even though Form 4852 is completed per IRS instructions.

The Solution: Why not just fix TurboTax, so that it accepts form 4852 with line 6 remaining blank, per IRS instructions? How difficult can it be to fix this software problem, which has persisted for years? Why does TurboTax continue to require a fictional TIN to be entered, contrary to IRS directions? If it's good enough for the IRS, why isn't it good enough for TurboTax?

E

eep_1948

This is a follow-up message, not a reply.

To date (1/14/2022), I have conferred with several IRS agents regarding IRS Notice CP80, which I received via an automated IRS mailing. The CP80 notice, dated 12/20/2021, states 'We've credited payments and/or other credits to your tax account for the tax year shown above. However, we haven't received your tax return.'

The notice also advised that my 2020 return may need to be re-submitted.

During conversations with these IRS agents, I learned that:

1) the IRS PROBABY does have my paper 2020 return, but it may not be processed yet - I was advised to wait for further IRS correspondence.

2) if I had e-Filed my 2020 return, I probably would not have received a CP80 notice. And irs.gov

https://www.irs.gov/newsroom/irs-operations-during-covid-19-mission-critical-functions-continue

states that 'If you filed electronically and received an acknowledgement, you do not need to take any further action....'

3) If I had filed my Foreign Pension TAXABLE Income (I do have a cost basis in the pension) as 'miscellaneous income' instead of filing Form 4852, the IRS could have responded with a letter requesting clarification - the agents recommended filing Form 4852 instead of entering the pension as 'miscellaneous income'.

4) I should not create fictitious TIN numbers simply because TurboTax is unable to process a Form 4852 per IRS instructions.

Conclusion: For Foreign Pension Income with pension cost basis , the IRS recommends filing form 4852 with line 6 remaining blank. However TurboTax is unable to process the return per these IRS instructions.

Why not just fix TurboTax so that it does process form 4852 as instructed by IRS?

O

optx103

I wholeheartedly agree, but 1) Intuit is a large for-profit corporation that's most interested in what the majority will pay for. Foreign pensioners are a distinct subset of the population, so perhaps not a big priority.

And 2) Maybe it's time for that national, equitable tax prep option (as complex and graduated as the process might be), especially now that Intuit and HRB have left the Freefile Alliance, but that will take an act of Congress in a somewhat divided and conflicted nation...

R

reddragon1148

My wife receives a pension from Germany (No fed tax id #). The difference in CO State tax between creating a 1099R vs reporting the income under miscellaneous is around $400. Creating a 1099R would be more advantageous! However it appears that because I do not have a Fed tax ID # for the German pension, I can only paper file the return...is this correct?

T

ThomasM125

@reddgragon1148 This is correct, you can only e-file the tax return if you have a federal ID number for your form 1099-R entry.

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C

carolineistanbu

trying to indicate that the pension fund is foreign on a 1099-R. turbotax automatically treats the pension as US income.

as a result, my foreign tax credit is reduced as it is calculated using the IRS formula: foreign tax credit= foreign sourced income/[US source income + foreign sourced income]xUS tax liability

all this means that there IS double taxation, because US source income is overstated, hence a coefficient <1 is applied, when it should be 1 as all income is foreign sourced

B

BrittanyS

If the pension is Foreign Income, you will want to ensure it is entered as foreign income, not US Income. This should allow the Foreign credit to be applied correctly.

To enter Foreign Income in TurboTax, follow these steps:

Click on Federal Taxes
Click Wages & Income (If you're in TT Home & Business: Personal > Personal Income > I'll choose what I work on)
Scroll down to the Less Common Income section, and Click Start next to Foreign Earned Income and Exclusion.
On the screen Did You Make Any Money Outside the United StatMarkmark Yes and click Continue.
On the screen What Form(s) Was Foreign Income Reported On? mark the selection that applies and click Continue.
Continue through the screens, entering the requested information.

To enter foreign taxes paid, please follow these steps:

Click on Federal Taxes
Click Deductions & Credits (In TT Home & Business: Personal > Deductions & Credits > I'll choose what I work on).
Scroll down to the Estimates, and Other Taxes Paid section.
Click on the box next to Foreign Taxes.
Click on the Yes box on the Foreign Tax Credit screen.
Enter the information requested on the screens.

For more information on the Foreign Earned Income Exclusion, see Foreign Earned Exclusion on the IRS website.

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E

eep_1948

Why doesn't TurboTax simply fix their substitute form 1099-R so that income from a foreign pension can be reported without using a fake TIN or entering the income as 'miscellaneous'? The IRS states that NO TIN should be entered on a substitute 1099-R when the pension income is from a foreign source. The field for TIN should simply be left blank. When the foreign pension income is not all taxable (because the recipient has a cost basis in the pension), the IRS requires reporting of the Gross and Net pension income and the remaining cost basis each year - not just reporting the net income as 'miscellaneous'. But Turbo Tax perpetually refuses to cooperate with e-Filing when the substitute 1099-R's TIN field is blank.

Turbo Tax's continued failure to conform to IRS directions leaves the Turbo Tax user with the choice of either filing a return that violates these rules or filing a paper return, which the IRS is no longer staffed to process without flagging the return as 'Not Filed' because the IRS can't process paper in a timely manner. Entering the foreign pension income as 'miscellaneous' so that Turbo Tax will e-file the return is in violation of IRS reporting directions when the foreign pension income is not all taxable because the recipient has a cost basis in her pension.

TurboTax has refused to address this problem for many years, despite annual feedback from users with the same problem reported above. Why not just fix Turbo Tax so it follows IRS directions?

I personally am sick and tired of wasting time every year asking Turbo Tax to fix this problem and then trying to file my return when another year rolls by and the problem remains.

The 2020 tax year was a watershed for me. After timely filing a paper return for the 2020 tax year because Turbo Tax cannot support e-filing a return that follows IRS directions, I dealt with months of fallout when the IRS and later Social Security (IRMAA) struggled to catch up processing the data on my 'unfiled' 2020 return. Exasperated by both Turbo Tax and the IRS, I now just follow the crowd enter a fake TIN on the foreign pension's substitute 1099-R. Pathetic!

Turbo Tax may value my feedback, but year after year Turbo Tax never does anything about it. Thoughts and Prayers…. Hearts and Flowers.... BS