Is foreign pension income taxable in the US? What expats must know

Foreign pension income isn’t something you can afford to ignore come tax season. If you're a US citizen or resident, the answer to Is foreign pension income taxable in the US? is a firm yes – regardless of where the money originates or where you currently live. From employer plans in Europe to private retirement accounts in Asia, your foreign pension plan may trigger income tax, reporting obligations, or both.

This matters because the IRS treats global income seriously – and foreign pension reporting is one of the most commonly misunderstood areas. A missed form or misclassified distribution could lead to unnecessary penalties or double taxation, while a correctly filed return ensures you get credit for taxes already paid abroad.

Brought to you by Taxes for Expats (TFX) – the trusted team helping Americans abroad stay compliant with foreign pension reporting and IRS rules. Have a pension or payout and unsure how it fits on your US return? We're here to help you – learn more about our services or contact us.

Key takeaways

Understand your obligations and avoid IRS scrutiny when dealing with foreign pensions. Use this quick list to file cleanly in 2025 – fast. Keep it handy while you complete your return.

• Report pension or annuity income on Form 1040 lines 5a/5b (IRA-type on 4a/4b) – even if no 1099-R is issued.
• The foreign earned income exclusion does not cover pensions or annuities.
• If you hold a foreign pension plan, track basis, and any previously taxed employer contributions to avoid double tax under the General Rule, and if it holds mutual funds, you may have PFIC reporting on Form 8621.
• File Form 8938 when your specified foreign financial assets (which can include pension interests) exceed your FATCA threshold.
• File an FBAR if your aggregate foreign accounts exceed $10,000 at any time in the year.
• Treaties may shift where tax is paid, but the saving clause often preserves US tax on citizens – attach Form 8833 when claiming a treaty-based position.

Know your pension type: what it means for US tax

Classifying your foreign pension is the foundation – everything else (tax, credits, FBAR, FATCA) flows from this. Each category below links directly to rules on reporting, treaty eligibility, and disclosure.

Government pensions – foreign public service plans

Paid by a foreign government for public service roles (e.g., civil service systems). Under many US treaties, government-service pensions are taxed by the paying state unless the recipient is a resident and national of the other country, as can be seen in Article 19 of the US Model.

Employer plans – pensions from foreign companies

Workplace schemes set up by a foreign employer (defined benefit or contribution). For many non-US-qualified arrangements, employer contributions are included in income when vested, and some highly compensated employees are taxed each year on vested accruals under 402(b).

A foreign pension plan in this bucket often lacks US-qualified status. As a real-world marker, Australia’s Super Guarantee rate is 12% from 1 July 2025.

Personal savings – plans like SIPPs and Pillar 3a

Individually established accounts you control – this is retirement savings you direct. HMRC describes SIPPs as personal pensions with investor-controlled assets; Switzerland’s Pillar 3a for 2025 caps contributions at CHF 7,258 for employed and CHF 36,288 for self-employed. Many foreign retirement plans allow self-directed investing and differ widely in US treatment.

Social security-type pensions – state old-age systems

State-run old-age systems (e.g., UK State Pension, Canada CPP/OAS, Germany’s statutory scheme). The UK’s full new State Pension is £230.48/week and generally requires 35 qualifying years for those without pre-2016 records. US Totalization Agreements coordinate coverage and help prevent double social-security taxation across systems.

Taxable triggers – what the IRS wants to see

Foreign pensions aren’t taxed all at once – they’re taxed in stages. The IRS breaks it down into contributions, investment growth, and distributions. Understanding which part is taxed, and when, avoids errors and ties directly into reporting and credit rules.

1. Contributions: Employee after-tax contributions form your basis. But foreign employer contributions to non-US-qualified plans are often taxed when vested, especially under 402(b). There’s no blanket foreign pension exemption for these.
2. Investment growth: Growth inside many foreign plans isn’t deferred for US tax. Some taxpayers – especially highly compensated employees – face current-year taxation on earnings.
3. Distributions: When payouts begin, the general rule determines how much is taxable. Distributions from a foreign pension are taxed above your basis; use Form 1116 to offset foreign tax paid.

Is foreign pension income considered earned income?

Pension and annuity payments are not earned income, so they don’t qualify for the Foreign Earned Income Exclusion (Form 2555). The IRS states that foreign pensions cannot be excluded on Form 2555, and its FEIE guidance defines earned income as pay for services performed – which pensions are not. Use credits (Form 1116) instead of FEIE if foreign tax was paid on the same income.

Reporting foreign pension income.

Here’s the clean, high-confidence path to file what matters and skip what doesn’t. You’ll see where each form fits, what it covers, the key thresholds, and a quick table to confirm your exact obligations.

Form 1040

Foreign pension income belongs on your main return, and this is where to report foreign pension on 1040. If you received a payment without a 1099-R, you still report the gross and taxable amounts.

• Lines 5a/5b – pensions and annuities; lines 4a/4b – IRA-type distributions. This is how to report foreign pension income on 1040.
• Keep a basis ledger (after-tax contributions + amounts previously taxed in the US).
• If you take treaty relief that changes taxation, attach Form 8833.

Form 8938 (FATCA)

Use Form 8938 Statement of Specified Foreign Financial Assets to disclose many foreign pension interests when your combined specified foreign financial assets exceed the threshold. For individuals living in the US, the thresholds are $50,000/$75,000 (single/MFS, end-of-year/any time) and $100,000/$150,000 (MFJ); for those living abroad, they’re $200,000/$300,000 (single/MFS) and $400,000/$600,000 (MFJ). It’s part of foreign account tax compliance, but does not replace the FBAR, and it’s filed with your 1040.

FBAR (FinCEN 114)

The FBAR is a Treasury filing separate from the IRS – a core piece of foreign account tax compliance. File if the aggregate value of your foreign financial accounts exceeds $10,000 at any time in the year; due April 15 with an automatic extension to Oct 15.

• Cash-balance pension with an individually valued cash account you can access may count toward passive foreign bank and financial accounts.
• Self-directed pension holding a foreign bank or brokerage account generally counts toward the $10,000 aggregate.
• File electronically with FinCEN; the FBAR isn’t attached to your tax return.

Form 8621 (PFICs)

If your plan (or you) holds investments in foreign mutual funds, determine whether you are treated as the PFIC shareholder. When you are, file Form 8621 and consider QEF or mark-to-market to avoid punitive default rules. This is where foreign investment companies PFICs collide with pensions, and the 8621 instructions outline the filing triggers.

Form 3520 / 3520-A (Foreign Trusts)

A foreign trust may trigger trust filings, but many employer plans taxed as 402(b) don’t require Form 3520-A or Form 3520 from participants. IRS Rev. Proc. 2020-17 exempts certain tax-favored foreign retirement/savings trusts from 3520/3520-A; long-standing relief also applies to RRSP/RRIF under Rev. Proc. 2014-55. These exemptions don’t remove FATCA/FBAR where applicable.

Not every foreign pension is a ‘trust’ – see where 3520 rules really apply

Learn more

2025 update: Did the OBBBA change foreign pension rules?

The One Big Beautiful Bill Act of 2025 reshaped some individual and business items (rates, deductions, information reporting) but did not change how the Code taxes individual foreign pensions. Expect continuity for 61, 72, 402(b), and for FEIE rules. Your ultimate tax may shift modestly due to rate/standarddeduction changes, but the mechanics above remain.

Treaties – who taxes and when it changes

Tax treaties decide who taxes your foreign pension and how – they don’t eliminate US filing or recognition, but they often assign primary taxing rights. You must disclose any treaty-based tax position using Form 8833, citing Reg. 301.61141. Once you’ve determined treaty treatment, use the foreign tax credit on Form 1116 to avoid double taxation. Here’s how this plays out for select countries:

1. United Kingdom – The UK allows a tax-free pension commencement lump sum of up to £268,275, but the US doesn’t automatically honor that relief. Under the US–UK treaty, certain lump-sum provisions exist, yet the saving clause typically ensures US taxation still applies to British pension income. You then include the pension on Form 1040 lines 5a/5b and file Form 8833 if you're claiming treaty relief. This is the correct path to report a UK pension on a US tax return.
2. Canada – Canada generally withholds 25% tax on nonresident pensions, but that rate often drops to 15% on periodic payments under Article XVIII of the treaty. The foreign country handles this withholding through Canada’s Part XIII system. You report the income on your US return and claim a foreign tax credit for the withheld amount, subject to US limits.
3. Australia – Treaty Article 18 typically gives taxing rights over private pensions to the country of residence, though the US saving clause means US citizens can still face tax liability. With superannuation, components may be taxed differently across Australia and the US, so you must confirm treaty specifics before assuming any deferral or exemption.

NOTE! Pension income is only exempt or deferred when a treaty grants exclusive taxing rights – often limited to certain government or social-security pensions. Saving-clause provisions in many treaties mean that most pension income received by US citizens remains taxable in the US. Always read the treaty carefully, and remember to file Form 8833 to document any position you take.

Special cases – social security & SIPPs

A quick map of tricky edges: how foreign social security is taxed, why SIPPs that hold mutual funds can trigger PFIC rules, and where country-specific treaty clauses change the result.

Foreign social security

It is rare to find a treaty article that says otherwise; foreign social security benefits are taxed by the US like other foreign pensions or annuities; no automatic exclusion applies. Treaties can reassign taxing rights, so always check the relevant article and any savings-clause carve-outs.

SIPPs and mutual funds (PFICs)

Many UK SIPPs are invested in mutual funds and ETFs. If you’re treated as the shareholder of those funds, PFIC reporting on Form 8621 can apply; consider QEF or mark-to-market elections if appropriate. The trigger is shareholder status (direct or indirect), not the account label.

Country-specific variations

Below, you’ll find a table highlighting how tax treatment varies by country – giving you a clear, side-by-side snapshot of differing pension and social security rules using the UK, Germany, and Canada as a case study.

Some countries tax your pension lightly – but the IRS still wants a cut

Learn more

Back in the US with a foreign pension

Moving back doesn’t reset the clock. You still report pension distributions on Form 1040, and if you withdraw before age 59, a 10% early-distribution tax (72(t)) may apply unless an exception is claimed on Form 5329. Track your cost basis carefully so only gains – not previously taxed contributions – get taxed. Form 1116 lets you claim credit for any foreign tax paid, and if your accounts reach $10,000 aggregate, FBAR applies.

Common mistakes to avoid

Even seasoned expats stumble on reporting foreign pensions – the rules mix income, forms, and information returns in confusing ways. Here are the missteps that cause the most trouble and how to recognize them early:

• Assuming pensions are tax-free. Many filers misclassify pensions as exempt when, in fact, the IRS foreign pension rules say otherwise.
• Not reporting passive accounts. Even if you think a plan is just sitting there, it may trigger foreign account tax compliance obligations.
• Skipping key forms. Failing to file FBAR, Form 8938, or Form 8621 for PFICs can create steep penalties.
• Overlooking foreign trusts. Certain plans may be treated as a foreign trust, requiring a check against reporting exceptions.
• Asking too late: Do I have to report foreign pension income? The answer is almost always yes – income and/or account disclosure applies.

Don’t risk penalties – let an expat tax pro guide you

Handling foreign pensions on your own is risky: a single misstep with reporting or treaty claims can trigger IRS audits, extra tax, and steep fines. The complexity multiplies when plans include mutual funds, early withdrawals, or foreign trust rules.

That’s where Taxes for Expats steps in. We specialize in helping Americans abroad and returnees untangle foreign pension reporting – from identifying 402(b) income to handling PFIC filings and ensuring every Form 8938 and FBAR is accurate. With decades of experience, we make sure your foreign accounts and pension income are handled correctly the first time.

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