US Pensions and Taxation

This chapter focuses on US taxation of pension plans related to US persons abroad indicating American citizens and residents who work and live outside of the United States. From the financial consumers’ perspective, “expatriates” or US persons abroad need enhanced “financial literacy” on how the domestic as well as foreign pension schemes will affect their obligation to comply with tax reporting and filing tax returns on their pension incomes from Social Security benefits and other private pension plans. This chapter presents four major themes. The first theme focuses on the US Social Security Taxation, Social Security Totalization, and Windfall Exemption which will affect US persons living and working in foreign countries. The second theme presents a generic pension and benefit pillar-based taxonomy and how they correspond to taxation in the US. The third theme is on private pension plans. Deduction and deferral options according to the optimal triplet representing three stages of taxation on the private pension schemes for establishing a basis for comparison in cross-border pension transfers are introduced. Rollovers and transfer of non-US foreign pensions, fiduciary liability, and corresponding risks on the US person are also discussed. The fourth theme relates to US persons’ tax filing and reporting obligations under the Foreign Account Tax Compliance Act and Foreign Bank and Financial Account Regulations.