Re: Foreign Pension Tax Ramifications
Posted: Sat Jul 03, 2021 6:22 am
As a US Citizen you have to pay US Taxes on that US Pension Income.
You may be able to invoke the US-Japan Tax Treaty to reduce the tax in the US as a Resident of Japan... Not sure. I can't comment on US Tax law.
(I had cause to check the Tax Treaty. See Later Post)
As a Japanese Permanent Resident for Tax Purposes you have to file the Gross Amount of the US Pension as Pension Income as Miscellaneous Income, as it has not been subject to Japan Witholding Tax, As you did, in your Kakutei Shinkoku (14 Mar)
If you choose Aggregate Taxation, it will be subject to taxation at your Marginal Tax Rate after any deductions or credits.
Edited> You may be able to claim the Public Pension Deduction if your pension falls under the criteria for qualification. See my next Post for details of the Public Pension Deduction.
You will then receive your 1040 from the US (14 Apr)
After you receive your 1040, you can go back to your Kakutei Shinkoku and amend it.
Enter the Amount of Tax Paid in the US on your US Pension Income in Page 1 Item 46 - Foreign Tax Credit
This will reduce the National Income Tax liability, but will not reduce the 0.315% Reconstruction Tax and 10% Residential Tax liabilities.
Edited: Unfortunately, you are still liable for the Resident's Tax 10%, but it may be on the reduced amount after the Public Pension Deduction, if your pension qualifies. See my next post on the Public Pension Deduction.
Now, if you could, and if you chose to take the Pension as a Lump Sum, there are very advantageous Tax terms in Japan.
There is a Special Deduction for Retirement Income. i.e. Onetime Retirement Bonus 退職金
This is calculated as follows:
For less than 20 years' service; Y400,000 x No. of Years of Service
For greater than 20 years' service; Y8,000,000 + Y700,000 x No. of Years of Service in excess of 20 years
Amount minus Deduction calculated above.
The remaining amount after this deduction is then divided in Half.
The remaining amount is then taxable at Standard Marginal Tax Rates
Up to 1,950k --- 5%
1,950 to 3,300k --- 10%
3,300 to 6,950k --- 20%
6,950 to 9,000k --- 23%
9,000 to 18,000k --- 33%
18,000 to 40,000k --- 40%
Over 40,000k --- 45%
If you then invested the money any future gains would be taxed
Under the Aggregate Taxation Method at your Marginal Tax Rate (X% National, 0.315% Reconstruction, and 10% Residential Taxes) - This is beneficial if you overall income is less than about Y8M
or
Under the Separate Self Assessment Method as Capital Gains (15% National, 0.315% Reconstruction, and 5% Residential Taxes)
You may be able to invoke the US-Japan Tax Treaty to reduce the tax in the US as a Resident of Japan... Not sure. I can't comment on US Tax law.
(I had cause to check the Tax Treaty. See Later Post)
As a Japanese Permanent Resident for Tax Purposes you have to file the Gross Amount of the US Pension as Pension Income as Miscellaneous Income, as it has not been subject to Japan Witholding Tax, As you did, in your Kakutei Shinkoku (14 Mar)
If you choose Aggregate Taxation, it will be subject to taxation at your Marginal Tax Rate after any deductions or credits.
Edited> You may be able to claim the Public Pension Deduction if your pension falls under the criteria for qualification. See my next Post for details of the Public Pension Deduction.
You will then receive your 1040 from the US (14 Apr)
After you receive your 1040, you can go back to your Kakutei Shinkoku and amend it.
Enter the Amount of Tax Paid in the US on your US Pension Income in Page 1 Item 46 - Foreign Tax Credit
This will reduce the National Income Tax liability, but will not reduce the 0.315% Reconstruction Tax and 10% Residential Tax liabilities.
Edited: Unfortunately, you are still liable for the Resident's Tax 10%, but it may be on the reduced amount after the Public Pension Deduction, if your pension qualifies. See my next post on the Public Pension Deduction.
Now, if you could, and if you chose to take the Pension as a Lump Sum, there are very advantageous Tax terms in Japan.
There is a Special Deduction for Retirement Income. i.e. Onetime Retirement Bonus 退職金
This is calculated as follows:
For less than 20 years' service; Y400,000 x No. of Years of Service
For greater than 20 years' service; Y8,000,000 + Y700,000 x No. of Years of Service in excess of 20 years
Amount minus Deduction calculated above.
The remaining amount after this deduction is then divided in Half.
The remaining amount is then taxable at Standard Marginal Tax Rates
Up to 1,950k --- 5%
1,950 to 3,300k --- 10%
3,300 to 6,950k --- 20%
6,950 to 9,000k --- 23%
9,000 to 18,000k --- 33%
18,000 to 40,000k --- 40%
Over 40,000k --- 45%
If you then invested the money any future gains would be taxed
Under the Aggregate Taxation Method at your Marginal Tax Rate (X% National, 0.315% Reconstruction, and 10% Residential Taxes) - This is beneficial if you overall income is less than about Y8M
or
Under the Separate Self Assessment Method as Capital Gains (15% National, 0.315% Reconstruction, and 5% Residential Taxes)
