FAQs - Foreign Pensions
Can foreign pensions be excluded on Form 2555?
Foreign pensions cannot be excluded on Form 2555. Foreign earned income for purposes of the foreign earned income exclusion does not include pensions and annuity income (including social security benefits and railroad retirement benefits that are treated as social security).
What are the tax implications of my foreign pension or retirement plan?
Just as with domestic pensions or annuities, the taxable amount generally is the Gross Distribution minus the Cost (investment in the contract). Income received from foreign pensions or annuities may be fully or partly taxable, even if you do not receive a Form 1099 or other similar document reporting the amount of the income. In general, your foreign pension and retirement plan should also be reported on the FBAR and Form 8938, if required. Depending on how the plan is structured, there may be additional reporting requirements on Forms 8621 and 3520. We suggest contacting a tax professional that specializes in taxation for expats if you are unsure of the filing requirements related to your foreign pension or retirement plan.
What are the tax implications if I own foreign mutual funds?
Foreign mutual funds typically fall under the Passive Foreign Investment Company (PFIC) classification and are taxed through a system that is much more punitive and disadvantageous than their domestic counterparts. If you own foreign mutual funds, you will most likely have to include Form 8621, the Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, with the filing of your return. We recommend consulting with an expert if you are unsure of the filing obligations related to your foreign investments.