[cortiz108]

Hi,


Hopefully a qualified tax professional can answer a question for me. I lived in Ireland for one year and have a retirement bond account there. It will be distributed as a lump sum when I reach retirement age (in 13 years). In the meantime, it is taxed every year by an Irish Government Pension Levy. Not a lot - currently 0.6% - but adds up over time.


My question is: do I (a) account for the levy tax on form 1116 and carry it over every year that I don't use it; or (b) do I wait until I actually receive the pension distribution, and deduct the total tax then? It seems to me that 1116 is only for income *received*, so is probably not be the right way to go...


I have checked with the Irish revenue office and it seems the taxes are not refundable on their end.


Thanks!

[AtlantaTaxExpert]

It is definitely NOT refundable. The U.S. government does the same thing on a larger scale to H-1, H-1B, L-1, L-2 and E visa holders by charging them FICA (Social Security and Medicare) taxes, knowing that the vast majority of the foreign workers will have NO CHANCE to qualify for a Social Security pension. The only way they get ANY credit for it is if there is a "totalization" agreement with the workers home country to transfer the credit for the taxes paid.

To answer your question, you must actually RECEIVE the income that is taxed to claim the Foreign Tax Credit.

[cortiz108]

Thanks for your reply! That's very helpful. I'm relieved I don't need to go back and amend 1116s for the past few years... So, basically, when I actually cash in the bond and receive the foreign income in 13 years or so, I'll be able to claim the FTC for taxes on the full amount accrued over the years?

[AtlantaTaxExpert]

Yes, that is MY interpretation of your tax situation.

[IntlTax]

The 0.6% tax is not based on income and therefore is not an income tax. Only income taxes can be claimed as foreign tax credits. Thus, the 0.6% tax can never be claimed as a foreign tax credit.

When the pension is distributed, there will be less cash available to distribute because the tax will have been imposed over the years. You should only be taxed on the amount distributed. Therefore, in effect, you will be able to deduct the tax by being taxed in the U.S. on only the amount distributed.

[AtlantaTaxExpert]

IntlTax's logic sounds correct, so I will yield to it.

[cortiz108]

IntlTax, thanks for the reply. Would this partly depend on how the bond is ultimately distributed to me, and how the Irish pension company accounts for the deductions? I mean, if the final statement shows an accrual of this pension levy tax over the years, which has been deducted from the bond, presumably I would be able take that full amount as FTC? The reason I'm thinking this is that when the bond is cashed in and distributed, it will be "income" that year, and the deductions are certainly tax on that income... Or am I grasping at straws?

[IntlTax]

You are grasping as straws. It is not an income tax. A credit cannot be claimed.