How do I report a pension from Puerto Rico on the federal income tax form for an OH resident?

My mother is a resident of Ohio and receives a pension from Puerto Rico (from my father's government job) in addition to Social Security. I need to know how specifically to report that pension income on the 1040 form. Is it considered foreign income? I have asked 4 local accountants and none of them knew. One of them, a volunteer tax helper for the county, told me she only has to report it on the PR return, but I'm not sure that's correct. She also has some interest earnings from accounts in PR, does it need to be reported and how? Thank you!

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CoryF

Thank you for joining our community, Mary.

My search has concluded that your mother does not need to include the Pension from Puerto Rico because it was sourced in that U.S. Territory. You can read Publication 970 to confirm this information. There is a Form 1040-PR, but it appears to only support filing as a Self-Employed individual and not with a Pension or Interest income from Puerto Rico. All Puerto Rico sourced income is not taxed on the U.S. tax return. She doesn't report the interest earnings from account in PR as well.

MatthewD

https://community.freetaxusa.com/discussion/comment/2032#Comment_2032

Hi Mary,

Yes, you may report the foreign pension as Other Income. Include in the description that it is a "foreign pension from PR". The Interest income can be reported on the Interest Income (1099-INT) page even though you do not have a 1099-INT.

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CoryF

Thank you for joining our community, Mary.

maryola8

https://community.freetaxusa.com/discussion/comment/2008#Comment_2008

Thank you for you answer and the link to Pub 970. Do you mean that for a US resident (not PR) income source from PR isn't taxable? I can see in Pub 970 that for bona fide residents of PR, that's the case and PR income isn't taxable. However, she's a resident of OH. For non residents of PR it says that a US tax form must be filed reporting worldwide income sources (which I assume includes PR but this is what I haven't been able to confirm) and that she can receive a foreign tax credit for tax paid to PR, which she probably won't have to pay because the pension is small and she qualifies for deductions. I wish the wording would spell it out more clearly.

PhillipB

So, the US residency in Ohio does change the outcome.

You're correct, the US taxes residents on all worldwide income unless there are certain treaty exclusions. Since Puerto Rico is a territory of the US, there are no treaty exclusions to this rule.

Unfortunately, our software has some limitations and one of those limitations is in reporting the foreign tax credit. Right now, we are only able to calculate the foreign tax credit in the software for income reported on US Forms 1099-INT, 1099-DIV, and Schedules K-1 for partnerships, s-corporations, and estates or trusts.

If she wants to claim the foreign tax credit on Puerto Rican pension income, she will need to find another method (another software or a local tax preparer) to prepare her return.

MatthewD

Hi Maryola8,

Thank you for the additional information. Here is a link to IRS Tax Topic 901. This specifically talks about a person with income from Puerto Rico. It says the following, "If you’re a U.S. citizen or resident alien but not a bona fide resident of Puerto Rico, you’re required to report all income from worldwide sources on your U.S. income tax return".

Was she a resident of PR two years before changing residency? If not, then report that interest and pension income on her US Form 1040. What kind of form did she get?

This tax topic does not state that it would be foreign income and if she in not required to file a PR return, then she should reported all the pension and interest income from PR and not worry about any foreign tax credit. From what I can find, if her PR income is less than $9,000 she doesn't have to file a PR return.

maryola8

https://community.freetaxusa.com/discussion/comment/2025#Comment_2025

Thank you for your helpful answer. So would I report her pension as "other income" and interest on schedule B? There are no 1099 forms, only forms from PR (480.) She was a resident of PR for decades before moving to Ohio, but she moved in November so that year she only filed PR taxes.

maryola8

https://community.freetaxusa.com/discussion/comment/2025#Comment_2025

Thank you for your helpful answer!

MatthewD

https://community.freetaxusa.com/discussion/comment/2032#Comment_2032

Hi Mary,

maryola8

https://community.freetaxusa.com/discussion/comment/2035#Comment_2035

Thank you!