SUPERANNUATION TAXATION IN THE US
Is Superannuation taxed in the US?
Australian Superannuation, much like so many other things in the US tax code, are in the gray area. That gives us the opportunity to use the ambiguity to our advantage.
Generally speaking, Superannuation are divided into two categories:
(1) Foreign grantor trust
A foreign grantor trust arises when more than 50% of the contributions to the fund were made by the individual. And if so, a portion attributable to the after-tax contributions would be reported on Form 3520 as a grantor trust. The earnings inside the funds would be taxed concurrently. Self-managed super funds are usually considered grantor trusts.
(2) Employees trust
If employer contributions are greater than 50%, the employer is the owner of the entire trust and the plan is considered a non-qualified employee’s trust.
In that case, it must be then determined whether the participant is highly compensated under IRC 410(B). If the participant is not highly compensated, then fund earnings are not subject to tax until distribution under IRC 402(b)(2). For highly compensated employees, the increase in the value of the plan is included as taxable income annually.
Section 414(q) defines highly compensated employees as one who:
(A) was a 5-percent owner at any time during the year or the preceding year, or
(B)for the preceding year--
(i) had compensation from the employer in excess of $80,000, and
(ii) if the employer elects the application of this clause for such preceding year, was in the top-paid group of employees for such preceding year.
The Secretary shall adjust the $80,000 amount under subparagraph (B) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter ending September 30, 1996.
Depending on the type of your superannuation, beside income tax reporting, you might have other reporting requirements such as Foreign Grantor Trust (Form 3520-A), Foreign Trust Beneficiary Return (3520), Foreign Bank Account Report (FBAR) and Statement of Specified Foreign Financial Assets (8938).
Generally speaking, Superannuation are divided into two categories:
(1) Foreign grantor trust
A foreign grantor trust arises when more than 50% of the contributions to the fund were made by the individual. And if so, a portion attributable to the after-tax contributions would be reported on Form 3520 as a grantor trust. The earnings inside the funds would be taxed concurrently. Self-managed super funds are usually considered grantor trusts.
(2) Employees trust
If employer contributions are greater than 50%, the employer is the owner of the entire trust and the plan is considered a non-qualified employee’s trust.
In that case, it must be then determined whether the participant is highly compensated under IRC 410(B). If the participant is not highly compensated, then fund earnings are not subject to tax until distribution under IRC 402(b)(2). For highly compensated employees, the increase in the value of the plan is included as taxable income annually.
Section 414(q) defines highly compensated employees as one who:
(A) was a 5-percent owner at any time during the year or the preceding year, or
(B)for the preceding year--
(i) had compensation from the employer in excess of $80,000, and
(ii) if the employer elects the application of this clause for such preceding year, was in the top-paid group of employees for such preceding year.
The Secretary shall adjust the $80,000 amount under subparagraph (B) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter ending September 30, 1996.
Depending on the type of your superannuation, beside income tax reporting, you might have other reporting requirements such as Foreign Grantor Trust (Form 3520-A), Foreign Trust Beneficiary Return (3520), Foreign Bank Account Report (FBAR) and Statement of Specified Foreign Financial Assets (8938).
Is the distribution from Superannuation Taxable in the US?
Upon distribution, the funds are taxable in the U.S. to the extent that the distributions exceed basis.
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Phone: (424) 888-3878
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