Expat Forum For People Moving Overseas And Living Abroad banner

1 - 9 of 9 Posts

·
Registered
Joined
·
29 Posts
Discussion Starter · #1 ·
Hi,

For the first time this year, it seems I've crossed the threshold for reporting for Form 8938 - mostly as a result of my pension.

It is, if I understand correctly, a "defined contribution" fund - I deposit money, my employer deposits money, and when I retire I'll get an annuity consisting of those deposits plus whatever interest/profit has accrued. I can't touch the money before retirement age without penalty, and I haven't done so yet.

In Part III of Form 8938, we are asked about the tax items attributable to each asset that we are reporting. I can see in my yearly report the amount of profit (the money is obviously invested) - which was added to the total sum of money in the account. What is that considered - interest, dividends, "other income", or gains? What is the tax implication of each, and where (on which IRS form/line) would I have to report it? Or is this whole section not relevant for me?

Thanks for any advice.
 

·
Banned
Joined
·
6,189 Posts
OK, first it's important to understand the basic principle that the IRS doesn't care what Israel's tax view of that account is. So you first have to determine what the IRS's view is. Unless a tax treaty says otherwise, such a defined contribution account would consist of the following elements (all reported to the IRS on a gross basis):

1. Ordinary earned income compensation. These are your employer's contributions. This income is generally taxable at ordinary income tax rates, though it can generally be excluded via the Foreign Earned Income Exclusion (FEIE). Or, in the alternative, in some cases, it can be treated as deferred income.

2. Interest and/or dividends (probably non-qualified dividends). These are generally taxable at ordinary income tax rates in the year received.

3. Capital gains. If there was an asset sale within the account then there'd generally be capital gains. If you're holding non-U.S. mutual funds or other PFICs in the account then you'll generally want/need to make mark-to-market elections to account for the gains.

The Foreign Tax Credit (IRS Form 1116) is available if you paid foreign income tax on any of these forms of income, but you cannot take the FTC on any income excluded via the FEIE.

So that's your first problem before you even get to IRS Form 8938: figure out where those income elements go in the rest of your tax return. Once you've figured that out, then, as the last step, you can put each portion of income into its little bucket on IRS Form 8938. Here's how it'll probably work for you, again absent a tax treaty that says otherwise:

Income category #1 is generally reported on IRS Form 1040 Line 7, though Line 21 is a possibility (and see above regarding possible deferral, though that's probably not a good idea if you can exclude the income via the FEIE).

Income category #2 is generally reported on IRS Form 1040 Lines 8a and 9a, with Schedule B attached. IRS Form 8621 may also apply.

Income category #3 is generally reported on IRS Form 1040 Line 13 with Schedule D attached. IRS Form 8621 may also apply.

If 2014 was the first year when this account was opened, great, you can file your 2014 tax return correctly. If not, you might have some cleaning up to do. The IRS's Streamlined Program might be a good option, for example.

If you're not already using tax preparation software, even the free online stuff (such as TaxAct.com and TaxSlayer.com), please consider doing so. I've referred to specific IRS forms and schedules, but I don't generally recommend filling out those forms and schedules directly. Tax preparation software serves a valuable purpose.
 

·
Registered
Joined
·
29 Posts
Discussion Starter · #3 ·
Thanks, BBCWatcher, I have some more information and questions :)

There is a tax treaty, which was signed before FATCA was a twinkle in anyone's eye. I don't know which part would be relevant here.

I have income only from my job, and that total amount (including my employer's contribution to the pension) is covered/excluded by the FEIE. I've always included that on my 1040. My issue here is just Form 8938 - I might be over the reporting threshold for this year. (Point 1)

There was no asset sale (at least, by me), so it looks like Point 3 also does not apply.

So it looks as though your Point 2 applies. Which brings me back to my original question - on which line of Form 8938 do I need to report the profit? The money is invested in different ways, and there is no way for me to know how much was invested in a particular stock or government bond, for example. Do I just report the profit as dividends (Line 1b)?

Thanks again for your help.
 

·
Banned
Joined
·
6,189 Posts
Yes, it sounds like you're receiving (non-qualified) dividends on that account and would report as such. But please take a look at whether you're holding PFICs, as mentioned, since that's a somewhat different approach involving IRS Form 8621. (If you don't know what you're holding then chances are excellent you've got PFICs.)

Another possibility, if this particular type of account is treaty-protected, is you'd file IRS Form 8833 (to take the treaty position) and then refer to that on your Form 8938 (probably in the "Other" line).
 

·
Administrator
Joined
·
50,470 Posts
Take a look at that tax treaty to see what it has to say (usually under the part dealing with "pensions" - often section 18 or 19, though it varies). You may have to read through all the versions of the treaty, plus documents called "Technical Explanation" (though the TE is often more readable than the treaty itself). Israel - Tax Treaty Documents Looks like you're in luck - there's only one treaty and one TE.
Cheers,
Bev
 

·
Registered
Joined
·
29 Posts
Discussion Starter · #6 ·
Thanks, Bev.

I have looked at both the treaty and the explanation - if I understand correctly, the treaty refers to payments from such an account but not the issue of "growth" (dividends, etc.), which is my question.
 

·
Registered
Joined
·
5 Posts
form 8938

Hi,

For obtaining salary / wages from a foreign employer that is deposited to a checking account, does this get anywhere reported on form 8938. Would that be inserted in line 3d "other income" (part III)?

Also, what is the definition for "credits" in part III line 1g?
 

·
Administrator
Joined
·
50,470 Posts
Form 8938 is for reporting Specified Foreign Financial Assets - i.e. things like savings accounts, investment, trusts, etc.

Your salary and wages are current income. You need to report the bank account, yes - but the income from that bank account would be any interest paid on the balance. They are looking only for income generated by the account itself.

You should probably take a look at the instructions for the form 8938 - also available from the IRS.gov website.
Cheers,
Bev
 

·
Registered
Joined
·
1,156 Posts
Karim,

Basically, your salary or wages get reported as income on a 1040... unless, that is, you are paid in cash or kind. Most employers will deposit that salary in a bank account. Its the bank account and its maximum value during the year that gets reported on Form 8938.

Depending on the combined total of all for foreign financial accounts you may or may not have to file 8938. But you will need to submit Schedule B because you have a foreign bank account.
 
1 - 9 of 9 Posts
Top