Social Security WEP Reduction?

[nun]

Once you start receiving a foreign pension you report it to the IRS on your tax return using a replacement 1099-R since foreign companies don't send you a 1099-R. I doubt that the IRS reports this to the SSA but I don't know for sure.

If FATCA gets fully implemented then I believe foreign companies have to report all pensions paid to US citizens. Again, I don't know if the SSA will get informed and follow through.

It's still not clear whether foreign pension funds will have to comply with FATCA. There was some agreement that potentially exempted UK pension companies from FATCA.

I'm not convinced that the 1099-R is the right place for a foreign pension they do not comply with the US regulations regarding pensions etc. Foreign pensions and SS are dealt with by treaty and I'd enter them on line 21 of the 1040 and file any necessary 8833.

I do completely agree with you about the fairness of WEP when applied to foreign pensions.....and indeed about the good reasons for it being appropriate when people have general non SS wage pensions.

 

[Alan]

I'm not convinced that the 1099-R is the right place for a foreign pension they do not comply with the US regulations regarding pensions etc. Foreign pensions and SS are dealt with by treaty and I'd enter them on line 21 of the 1040 and file any necessary 8833.

I've not had a problem filing the 1099-R substitute form (4852) as I clearly indicate in the reasons that it is a foreign pension, and how I calculate the exchange rate etc. It is 100% taxable in the US so I'm not claiming any exemption.

I think form 8833 would be used if I was paying UK taxes on the pension and I didn't want to pay taxes twice. When I first starting receiving my UK pension I had to get a certificate from the US IRS, and then file that with the UK Inland Revenue to prove I was a US resident tax payer, and they informed the pension company to not withhold UK taxes.

A taxpayer takes a treaty-based
return position by maintaining that a
treaty of the United States overrules or
modifies a provision of the Internal
Revenue Code and thereby causes (or
potentially causes) a reduction of tax on
the taxpayer’s tax return

.

 

[nun]

I've not had a problem filing the 1099-R substitute form (4852) as I clearly indicate in the reasons that it is a foreign pension, and how I calculate the exchange rate etc. It is 100% taxable in the US so I'm not claiming any exemption.

I think form 8833 would be used if I was paying UK taxes on the pension and I didn't want to pay taxes twice. When I first starting receiving my UK pension I had to get a certificate from the US IRS, and then file that with the UK Inland Revenue to prove I was a US resident tax payer, and they informed the pension company to not withhold UK taxes.

.

Yes sorry I was wrong about reporting foreign pensions on line 21.....they go on line 16a or 16b. Do you do the same for UK SS and do you file a separate 4852 for that?

The US-Individual-2002 is the form you file with HMRC to stop UK tax withholding, its the equivalent of the W-8BEN, but without the citizenship issues.

 

[Alan]

Yes sorry I was wrong about reporting foreign pensions on line 21.....they go on line 16a or 16b. UK SS does have to go on line 21 though.

The US-Individual-2002 is the form you file with HMRC to stop UK tax withholding, its the equivalent of the W-8BEN, but without the citizenship issues.

US-Individual-2002 is the form I filed, back in 2007 - didn't remember that it was that long ago. I'm getting old

I do report it on line 16.

I'll try and remember to report the UK SS on line 21 when I get it but that is still 10 years away.

 

[nun]

US-Individual-2002 is the form I filed, back in 2007 - didn't remember that it was that long ago. I'm getting old

I do report it on line 16.

I'll try and remember to report the UK SS on line 21 when I get it but that is still 10 years away.

Sorry looks like I'm wrong again..... I think UK SS is also taxed as an annuity.

 

[Original Wally]

WHEW! Is it correct that WEP **only** applies to Govt Pensions where the underlying wages were NOT subject to SS tax?? If so, I am in the clear - w*rked for a Calif local Municipal District so I get a CalPERS retirement, BUT they also deducted SS Tax - so I **should be** in the clear, right Even if it is ONLY "lunch money", that beats a poke in the eye.

 

[nun]

WHEW! Is it correct that WEP **only** applies to Govt Pensions where the underlying wages were NOT subject to SS tax?? If so, I am in the clear - w*rked for a Calif local Municipal District so I get a CalPERS retirement, BUT they also deducted SS Tax - so I **should be** in the clear, right Even if it is ONLY "lunch money", that beats a poke in the eye.

Yes, if you had SS deducted there's no WEP, but make sure it wasn't only the Medicare component of the FICA tax that was deducted.

 

[Original Wally]

Nope - the WHOLE 7.65%

 

[BLS53]

Medicare tax only, will be denoted on your SS statement. The column will be blank on the SS tax side. I know because I have 5 years of non-SS part time substitute teaching. The Medicare tax shows up, without the SS contribution. I imagine this is one of the ways the SSA determines you might be getting a non-SS pension. Fortunately, I was never vested in the teachers pension, and received a refund of contributions. But I look for the WEP question to come up when I apply for SS in 2 years. I've kept the resignation letter and 1099R, for that purpose.

 

[DMGO]

Should find out how hard the WEP will hit me, in the next few days. I couldn't make any sense of the SS AnyPia calculator's results. And everyone I asked, tells me something different...

 

[akck]

Should find out how hard the WEP will hit me, in the next few days. I couldn't make any sense of the SS AnyPia calculator's results. And everyone I asked, tells me something different...

If you go to page 6 (at least that's the page on mine), it will show you your PIA eligibility and lower down, your PIA after windfall. The difference between the two is what WEP cost you.

 

[Rustward]

Or just look on page 1 at "Benefit After Rounding". On this report it is about the 23rd nonblank line on the page.

Are you having difficulty entering the data or interpreting the report or both?

 

[DMGO]

Or just look on page 1 at "Benefit After Rounding". On this report it is about the 23rd nonblank line on the page.

Are you having difficulty entering the data or interpreting the report or both?

Difficulty interpreting the report. For me, it's page 5 PIA at eligibility, MINUS PIA AFTER windfall. Is that supposed to be my actual HIT, or actual check from SS? That's the confusion...

 

[Rustward]

It might be easier if you just note the benefit with the pension, then remove the pension and see what the benefit is without the pension. Of course, the difference in benefit amounts will be the "hit".

To tell you the truth, other than looking at the data I entered to make sure it is correct, the only number I have ever been concerned with is the benefit. DW's SS, not mine.

 

[nun]

I just confirmed that my entire UK state pension does not trigger WEP because 27/30ths of it is from voluntary payments and the other 3/27ths is from payments that were not connected with employment. Unfortunately my MA state pension will be more than enough to require my SS to get the max WEP.

 

[obgyn65]

This is news to me. How many years of UK voluntary contributions (out of the 30 years to get the State Pension) do you need to avoid the WEP?

I just confirmed that my entire UK state pension does not trigger WEP because 27/30ths of it is from voluntary payments and the other 3/27ths is from payments that were not connected with employment. Unfortunately my MA state pension will be more than enough to require my SS to get the max WEP.

 

[nun]

This is news to me. How many years of UK voluntary contributions out of 30 years do you need to avoid the WEP?

I think I was a bit unclear in my comments. None of my years of UK national insurance contributions can be used to help me avoid WEP. However, as none of my 30 years of UK national insurance was connected with non SS wages they do not trigger any WEP of my US SS. They are made up of 27 years of voluntary payments I've made while living in the USA and 3 years of contributions I was credited with form age 16 to 18 while I was at school in the UK.

 

[obgyn65]

I just googled this topic and found this :

https://secure.ssa.gov/poms.nsf/lnx/0200307290

Please see point 5 :

"5. Payments Which Cannot be Used to Apply WEP Guarantee Provision
Some foreign pensions are not based in whole or in part on work performed after 1956. Therefore, the following foreign pension payments cannot be used to apply the WEP guarantee provision:
Universal pension supplements payable to all aged individuals in a particular country, and not just to qualified workers.
That part of a pension based on voluntary social security contributions which some countries allow individuals to make in order to increase the amount of their pension."

 

[nun]

The critical thing is whether the foreign SS is from "work or non-work" factors. Voluntary contributions are a non-work factor.

"
C. Policy - Foreign Pensions

1. Eligibility

A foreign pension based on employment not covered by U.S. Social Security is treated as any other pension based on non-covered employment. However, WEP does not apply if the foreign pension is based on factors other than work, e.g., residence, voluntary contributions or financial need."

https://secure.ssa.gov/poms.nsf/lnx/0300605372

https://secure.ssa.gov/apps10/poms.nsf/lnx/0201701320

 

[Alan]

Obgyn,

Let me try and show the difference between my situation and nun's. We are both entitled to UK SS.

My UK SS comes entirely from the jobs I worked at in the UK, and with those UK jobs, I paid nothing into the US SS system, so my UK SS comes into play for WEP.

Nun only has 2 or 3 years of contributions into the UK system. The other 20+ years of contributions came from his after-tax money from the US jobs he had. All he has done is use some money that he earned, and paid SS taxes on, in the USA to buy an annuity. That annuity happens to be in the UK, via the UK SS system to which he paid into from his US wages.

 

[nun]

Obgyn,

Let me try and show the difference between my situation and nun's. We are both entitled to UK SS.

My UK SS comes entirely from the jobs I worked at in the UK, and with those UK jobs, I paid nothing into the US SS system, so my UK SS comes into play for WEP.

Nun only has 2 or 3 years of contributions into the UK system. The other 20+ years of contributions came from his after-tax money from the US jobs he had. All he has done is use some money that he earned, and paid SS taxes on, in the USA to buy an annuity. That annuity happens to be in the UK, via the UK SS system to which he paid into from his US wages.

Yes that's a good way to look at it. And the amazing thing is the voluntary contributions only cost $200 a year and after 30 years you qualify for full UK state pension. Soon that'll be around $12k a year, not even close to the average SS check, but you have to factor in other benefits and healthcare to get a truer comparison.

Just to be pedantic I've never made UK NI contributions connected with employment/wages in the UK. I got 3 years credits just for being resident in the UK from the ages of 16 to 18, so they are non-work related, and I've made 27 years of voluntary payments. I did start to think whether having made 10 of those 27 years of contribution while working in a non-SS state job might have some WEP implications, but the wording of the WEP exclusion makes me think not

"However, WEP does not apply if the foreign pension is based on factors other than work, e.g., residence, voluntary contributions or financial need."

That seems pretty clear.

 

[obgyn65]

Thank you for the clarification, Alan.

In my case I have about 15 years of work in the UK and I have contributed voluntarily for another 5 years since I have been working in the US.

I guess I will get WEP'ed. I still intend to buy another 10 years voluntarily to make sure I get the UK state pension when reaching 67.

Obgyn,

Let me try and show the difference between my situation and nun's. We are both entitled to UK SS.

My UK SS comes entirely from the jobs I worked at in the UK, and with those UK jobs, I paid nothing into the US SS system, so my UK SS comes into play for WEP.

Nun only has 2 or 3 years of contributions into the UK system. The other 20+ years of contributions came from his after-tax money from the US jobs he had. All he has done is use some money that he earned, and paid SS taxes on, in the USA to buy an annuity. That annuity happens to be in the UK, via the UK SS system to which he paid into from his US wages.

 

[Alan]

Thank you for the clarification, Alan.

In my case I have about 15 years of work in the UK and I have contributed voluntarily for another 5 years since I have been working in the US.

I guess I will get WEP'ed. I still intend to buy another 10 years voluntarily to make sure I get the UK state pension when reaching 67.

No problem. This thread has been enlightening. I wouldn't have known about the WEP effect on my SS until I applied for it in 10 years time.

C'est la vie

 

[nun]

Thank you for the clarification, Alan.

In my case I have about 15 years of work in the UK and I have contributed voluntarily for another 5 years since I have been working in the US.

I guess I will get WEP'ed. I still intend to buy another 10 years voluntarily to make sure I get the UK state pension when reaching 67.

You can reduce WEP by building up your SS credits. If you get 30 years worth you cannot be WEPed.

 

[obgyn65]

Yes, but this would mean no FIRE for me then.
So this is why I have been looking at the "government employee exemption" for those federal employees hired after 1983. See my question in my posts above : how long would I need to work in a government position not to be affected by the WEP ? I could find a couple of locum tenens positions in Indian reservations government-run clinics for example, providing medical care a few weeks a year, and not be impacted by the WEP when I reach 62 ?

You can reduce WEP by building up your SS credits. If you get 30 years worth you cannot be WEPed.