Foreign annuity tax question.
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Foreign annuity tax question.
I'm a US citizen who lived in Senegal for 5 1/2 years working for a government funded education program. While there, I put funds in a local bank. In august, I converted the cash balance to a monthly annuity. I am paid $823 monthly by Banque Atlantique Senegal. This will be the first tax year getting the payments, Will the full amount be taxable at my normal tax rate? Should I get a form from the paying bank? If it helps, I have permanent residency status in Senegal now, as well as US citizenship.
- typical.investor
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Re: Foreign annuity tax question.
Yes, I believe so. The US taxes worldwide income. If it's a social security type payment and there is a treaty in place, it could be eligible for exclusion from income. I don't think an annuity purchased with cash savings qualifies though.kforbes862 wrote: ↑Tue Sep 18, 2018 12:59 pm I'm a US citizen who lived in Senegal for 5 1/2 years working for a government funded education program. While there, I put funds in a local bank. In august, I converted the cash balance to a monthly annuity. I am paid $823 monthly by Banque Atlantique Senegal. This will be the first tax year getting the payments, Will the full amount be taxable at my normal tax rate?
Not sure what you mean by form, but a statement to show the yearly income wouldn't hurt your records.kforbes862 wrote: ↑Tue Sep 18, 2018 12:59 pm Should I get a form from the paying bank? If it helps, I have permanent residency status in Senegal now, as well as US citizenship.
Will you be paying taxes in Senegal on the amount? If so, you can claim a foreign tax credit on your US returns for the amount. Something official showing the amount received and amount paid in tax is what you want.
Re: Foreign annuity tax question.
I'm not a tax specialist, especially regarding foreign income. But it seems that only part of your annuity may be taxable. See IRS Publication 939: General Rule for Pensions and Annuities.kforbes862 wrote: ↑Tue Sep 18, 2018 12:59 pm… I put funds in a local bank. In august, I converted the cash balance to a monthly annuity. … Will the full amount be taxable at my normal tax rate?
Who must use the General Rule. Use this publication if you receive pension or annuity payments from:
- A nonqualified plan (for example, a private annuity, a purchased commercial annuity, or a nonqualified employee plan) … (underline added)
on page 7 the IRS wrote:Example 1. You purchased an annuity with an investment in the contract of $10,800. Under its terms, the annuity will pay you $100 a month for life. The multiple for your age (age 65) is 20.0 as shown in Table V. Your expected return is $24,000 (20 × 12 × $100). Your cost of $10,800, divided by your expected return of $24,000, equals 45.0%. This is the percentage you will not have to include in income.
Each year, until your net cost is recovered, $540 (45% of $1,200) will be tax free and you will include $660 ($1,200 − $540) in your income. If you had received only six payments of $100 ($600) during the year, your exclusion would have been $270 (45% of $100 × 6 payments).