Need Info on Taxes on US Pension Received By A Thai

[rickb]

I'm looking for any info that can be provided on US taxes to be paid on a pension my Thai wife will receive after I die.  A little background first.  I am a US citizen married to a Thai and we are living in Thailand.  I currently receive a pension from a US company.  After I die, my wife will continue receiving that pension until she dies.  This arrangement is referred to as a "100% Joint and Survivor Pension".  My question is about what amount of US taxes my wife will have to pay to the US Federal government on the pension amount she receives.  As I understand the US Tax Code, a non-resident alien (such as my wife) must pay 30% tax on income she receives from a US company, unless there is a Tax Treaty between the US and Thailand that reduces that amount.  I have heard, but haven't seen it in writing, that there is a Treaty between these two countries that limits taxes to be paid to the US by Thai citizens to 15%.  Is there a TV member that has experience with this type of situation or knows about the US-Thai Tax Treaty.  Any advice would be greatly appreciated.  

[lopburi3]

Below is the tax treaty.  Article 20 believe applies.  

https://www.irs.gov/pub/irs-trty/thailand.pdf

 

Believe she will be subject to normal tax rate/file US tax return - believe that 30% is backup withholding if no treaty and until W8-BEN form filed.

 

But I have not researched this as mine is covered by article 21 so appears tax would be due in Thailand.

[rickb]

Thanks Lopburi3 for your prompt response and the link to the US-Thailand Tax Treaty.  I have read Article 20 of the US-Thailand Tax Treaty and understand it to state that a Thai citizen residing in Thailand would only have to pay Thai taxes, not US taxes, on any pension income received from a US-based company.  Are you aware of any tax lawyers in Thailand who can advise the correct interpretation of the US-Thailand Tax Treaty?  I'm very concerned that my interpretation may not be correct.  When my wife must submit the W-8BEN form after my death, I want to make sure, now, that she has the correct information to include in the form.  If my interpretation is correct, it should mean that there is no withholdings taken on the pension payments since no tax payments would be required.  

[lopburi3]

I read it that normal tax payment must be made in country paying under article 20 except when subject to 21 government provision (para 2).  Believe tax must be paid in USA on a private pension paid by a US firm.  But reading officialese is not my forte.  

[partington]

It's important to distinguish between tax withholding and tax owed.  If tax is withheld at either 15% or 30%  this is a protection against non-payment of taxes, NOT the final amount owed.  

 

Pensions paid to a non-resident non-citizen is likely to be taxed by the US at graduated income rates, therefore filing a non-resident 1040 tax form  will allow any excess tax withheld to be refunded. This is tedious and difficult however and the existence of the tax treaty renders this unnecessary.

 

I'm not any kind of a tax expert but have studied the US-UK tax treaty pretty carefully, as I also am due a US pension at some point.

 

I would say that (TO ME) article 20.1 of the THAI-US tax treaty says pretty clearly that a private pension paid by a US company to a Thai resident is taxable only in Thailand, so a correctly submitted W-8BEN form should allow for 0% withholding, and therefore no need to undergo the annual chore of claiming a refund:

"ARTICLE 20

1. Subject to the provisions of paragraph 2 of Article 21 (Government Service [not relevant]), pensions and other similar remuneration paid to a resident of a Contracting State [Thailand] in consideration of past employment shall be taxable only in that State [Thailand]. "

 

However article 20.2 of the treaty suggests to me that social security payments from the US to a Thai resident or a US citizen would be taxable in the US, though this seems odd and unusual. 

 

"2. Notwithstanding the provisions of paragraph 1, social security benefits and other similar public pensions paid by a Contracting State [US] to a resident of the other Contracting State [Thailand] or a citizen of the United States shall be taxable only in the first-mentioned State [US]. "

 

 

EDIT:  Just to add, not wishing to worry anyone unnecessarily, but some US pension companies, particularly Fidelity, are actually refusing to obey the tax treaty between the UK and the US now, and despite the treaty specifying 0% withholding, will cover themselves by withholding 30% anyway, and leaving the hapless beneficiary to try to claim it back.

 

They say that if they (Fidelity) make a mistake the IRS will hold them responsible for unpaid tax, so they just ignore the treaty. It's a good idea to check with the pension provider about their policy, as they are the ones responsible for the withholding.

Edited January 12, 2017 by partington

[lopburi3]

That gives me a better understanding of there use of term contracting state (meaning your state) so with that in mind believe above (partington post) is likely correct (but under 20.3 clause - 20.1 as I read it would only apply to former worker as she was not employed).  

 

[Pib]

I read Article 20.1 and 20.2 the same as partington.   

[gk10002000]

I would guess that in advance your Thai wife will need some sort of tax ID number in order for the pension to be properly accounted for?  EIN's typically are used for businesses, but I would assume there is something, probably the ITIN that the IRS will need and can provide for your wife to use?  I think she will need an ITIN, so you might want to get that in advance so things go smoother later.

Edited January 14, 2017 by gk10002000
itin

[lopburi3]

Her tax identification number from Thailand is all that is required on the W8-BEN form.  If they are currently filling a joint US tax return she would have an ITIN but if not that is about the only way to obtain these days.  Even old numbers are canceled if not used under current policy.

[rickb]

Thanks to all that have replied.  BTW, my wife already has a US Social Security number from when she lived in the USA with her Green Card.  I agree with the interpretation of the Thai-US tax treaty, Article 20, as stated by partington.  I'll try to get a response from the benefits services group at the company providing the pension now to try to make the tax withholding issue clearer now, before I'm not around to help my wife.