precision amidst complexity US Tax Aspects

Transcription

1 precision amidst complexity Swiss/US/UK Pension Issues US Tax Aspects Darlene F. Hart

2 U.S. Tax & Financial Services Established in 1986 in London, England Offices in Zurich & Geneva since 2003 Firm of U.S. & U.K. tax accountants and lawyers Largest independent U.S. & U.K. tax compliance and consulting firm in Europe

3 Basic US Tax Law World Wide Taxation Green Card Holders Considered US Tax Residents for US Federal Tax Purposes US Tax Residence 183 day rule over 3 year time frame Current Year 1/3 1 st Preceding year (120) 1/6 2 nd Preceding year (120) Total Days State Law Differs 120 Days 40 Days 20 Days 180 Days

4 US Pension Law US Qualified Pension Plans Defined Contributions Plans Maximum contribution $49,000 or 100% of salary. 401K Plan, Employee Stock Ownership Plans and Keogh Plans(HR10) and IRA s Defined Benefit Plans Maximum annual retirement benefit cannot exceed $195,000/yr or 100% of 3 highest yrs of compensation. IRC Sec 401: Plan must be written, permanent, for the exclusive benefit of employees and must prohibit the assignment and alienation of benefits, restrict withdrawal rights and provide only incidental benefits other than retirement.

5 Individual Retirement Accounts Self Directed Employers or Employees can contribute SEP Simplified Employee Pension Simple IRA Roth IRA

6 Pension Contributions to US Qualified Plans are deductible from taxable income Various Limitations depending on type of plan US Tax Residents, Citizens, Green Card Holders Normal Limitations Maximum $49,000 or 100% of salary Catch up Contributions - 401K plans, 401(b), 457 plans and SARSEP Plans $5,500 or for 2009 and 2010 Simple 401(K) or Simple IRA, maximum Catch up is $2,500

7 Pension Contributions to Non US Qualified Plans Generally NOT deductible from US taxable income US/UK Tax Treaty allows US Citizens / Green Card Holders to make US deductible contributions to certain UK pension plans up to US qualifying limits. Currently max $49,000 or 100% salary US/Swiss Tax Treaty does not have the same provisions as US/UK tax treaty on pension contributions. 100% of employee contributions and employer contributions + growth with in the Swiss pension plans are all considered taxable Income.

8 Distributions from US Qualified Plans Prior to Age 59 ½ - Potential 10% Penalty for early distributions. Exceptions, Death, disability, or substantially equal periodic distributions over the life of the participant, QDOT distributions, divorce, etc. Rollover to IRA(individual retirement account) or other US qualified plans Lump Sum Distributions Look to Treaty whether taxable or not. Otherwise 10 year averaging is available for individuals born pre Jan 2, 1936 or a 20% tax if the individual was a participant of the plan during the last 5 years prior to distribution. To Foreign Nationals living abroad Look to income tax treaties, place of residence, domicile status if living in the UK.

9 US/UK Tax Treaty Pension Distributions Individual living in USA UK & USA pension distributions are subject to US federal and state income tax and not subject to UK income tax. Look to tax basis of US and Foreign pension plans to determine the taxable portion vs nontaxable portion, ie return of capital. Individual living in UK UK & USA pension distributions are subject to UK income tax, not US income tax. US citizen & green card holders beware Saving Clause you are subject to US income tax on all pension income. Lump Sum Distributions (not defined) taxable in Country where plan is resident Periodic Distributions taxable where individual is resident.

10 US/Swiss Tax Treaty Pension Distributions Individual living in Switzerland Swiss and US pension distributions are subject to Swiss income tax, not US income tax. 1. Foreign Nationals with US Pensions you may need to file US federal income tax returns form 1040NR and make a treaty claim. A US pension will issue a form 1099R, therefore you may need to file a return to avoid paying US income tax. 2. US citizen and Green card Holders with US & Swiss pensions, you are still subject to US federal income tax on US & Swiss pensions. Treaty does not give you any benefits here. See Saving Clause in the US/Swiss treaty Individual living in USA Swiss and US Pension distributions are subject to US Federal and State Income tax.

11 In the event of Death Holder of a US pension US citizen, full Fair Market Value (FMV) of the individual s US or foreign pension is subject to US federal estate tax if the individual is living in the USA, state estate tax or inheritance tax must also be taken into account. Foreign National Look to US Estate Tax Treaty in country of residence at death to determine if US pension will be subject to US estate tax or state inheritance or estate tax. Foreign National Individual who inherits the US pension IRA, 401K plan, etc. May Elect lump sum distribution or continue to take periodic payments look to tax treaty to determine taxability.

12 In the event of Death US citizen, holder of Non US pension plans Look at the Estate Tax Treaty of the place where individual lived at date of death. Normally subject to US federal estate tax FMV on date of death. May be subject to state estate or inheritance tax depending on where decedent was resident on date of death.

13 US Citizen in the Event of Expatriation 100% FMV of US and Foreign pension is subject to US expatriation tax. Expatriation Rules Covered expatriate Exemption from expatriation Tax 1.Dual national on date of birth 2.Net worth less than $2,000,000 on date of expatriation 3.Has filed last 5 years worth of US returns.

14 Questions & Answers US Tax & Financial Services Sàrl Löwenstrasse 28 PO Box 1367 CH-8021 Zürich Darlene F Hart CEO T: +41 (0) F: +41 (0) E: enquiries@ustaxonline.ch

15 Under applicable U.S. regulations (Circular 230), we are required to inform you that, unless we specifically state otherwise, any tax advice in this communication (and in any attachments to it) was not intended or written to be used, and cannot be used, for the purpose of: (i) avoiding tax related penalties; or (ii) promoting, marketing or recommending to another party any matter(s) addressed herein.