Lump Sum Distribution From Swiss Retirement Account

[tb]

Back in the 80s I worked for six years in Switzerland. (I have dual
US-Swiss citizenship)

I was employed and paid by a Swiss company; I was not a tranfer
employee from a U.S. company.

During that time, a portion of my salary was credited, _before tax_, to
a Swiss retirement account that was essentially like a 401(k). Upon my
returning to the U.S. all that was in that account was transferred to
another Swiss account similar to a retirement IRA here in the USA.

I have now reached regular retirement age according to Swiss law and
thus I have elected to close the account and take a lump sum
distribution.

The Swiss administrator has paid the lump sum a few weeks ago, minus
Swiss taxes. They will refund the Swiss taxes if I can prove to them
that I have paid taxes here in the USA on the lump sum distribution.
Apparently, there is an agreement between the US and Switzerland in
order to avoid double taxation that allows that.

How do I handle it with the IRS? What forms do I need to attach to my
2022 form 1040?
--
tb

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[ira smilovitz]

On Monday, June 20, 2022 at 10:42:31 AM UTC-4, tb wrote:
> Back in the 80s I worked for six years in Switzerland. (I have dual
> US-Swiss citizenship)
>
> I was employed and paid by a Swiss company; I was not a tranfer
> employee from a U.S. company.
>
> During that time, a portion of my salary was credited, _before tax_, to
> a Swiss retirement account that was essentially like a 401(k). Upon my
> returning to the U.S. all that was in that account was transferred to
> another Swiss account similar to a retirement IRA here in the USA.
>
> I have now reached regular retirement age according to Swiss law and
> thus I have elected to close the account and take a lump sum
> distribution.
>
> The Swiss administrator has paid the lump sum a few weeks ago, minus
> Swiss taxes. They will refund the Swiss taxes if I can prove to them
> that I have paid taxes here in the USA on the lump sum distribution.
> Apparently, there is an agreement between the US and Switzerland in
> order to avoid double taxation that allows that.
>
> How do I handle it with the IRS? What forms do I need to attach to my
> 2022 form 1040?
> --
> tb
>
> --

The Switzerland - United States Tax Treaty (Article 18) states that all pensions are taxable only in the country where the recipient is resident. You need to report the lump-sum payment in the same manner as if you had received a 1099-R from a US source and pay the relevant tax. I imagine this involves converting the lump-sum to USD and reporting it on lines 5a, 5b, or 6a, 6b on Form 1040.

Ira Smilovitz, EA
Leonia, NJ

[Adam H. Kerman]

ira smilovitz <ira.sm...@gmail.com> wrote:
>On Monday, June 20, 2022 at 10:42:31 AM UTC-4, tb wrote:

>>Back in the 80s I worked for six years in Switzerland. (I have dual
>>US-Swiss citizenship)

>>I was employed and paid by a Swiss company; I was not a tranfer
>>employee from a U.S. company.

>>During that time, a portion of my salary was credited, _before tax_, to
>>a Swiss retirement account that was essentially like a 401(k). Upon my
>>returning to the U.S. all that was in that account was transferred to
>>another Swiss account similar to a retirement IRA here in the USA.

>>I have now reached regular retirement age according to Swiss law and
>>thus I have elected to close the account and take a lump sum
>>distribution.

>>The Swiss administrator has paid the lump sum a few weeks ago, minus
>>Swiss taxes. They will refund the Swiss taxes if I can prove to them
>>that I have paid taxes here in the USA on the lump sum distribution.
>>Apparently, there is an agreement between the US and Switzerland in
>>order to avoid double taxation that allows that.

>>How do I handle it with the IRS? What forms do I need to attach to my
>>2022 form 1040?

>The Switzerland - United States Tax Treaty (Article 18) states that all
>pensions are taxable only in the country where the recipient is
>resident. You need to report the lump-sum payment in the same manner as
>if you had received a 1099-R from a US source and pay the relevant tax.
>I imagine this involves converting the lump-sum to USD and reporting it
>on lines 5a, 5b, or 6a, 6b on Form 1040.

Is he literally filing a Swiss tax return to obtain the refund of
withheld taxes? Is making a return optional or mandatory under the tax treaty?

Just curious since you've already looked it up.

[ira smilovitz]

I have no idea. My initial thought, before looking at the treaty, was that he would file his US tax return and claim the foreign tax credit to reduce his US tax liability for the tax paid in Switzerland. The treaty seems to state otherwise. I don't know if the Swiss payor remitted the tax to the Swiss tax authorities or is just holding it in escrow pending receipt of proof of tax payment to the IRS. I do very little international tax work, but the little that I do has taught me where to begin to look for answers.

Ira Smilovitz, EA
Leonia, NJ

[tb]

The Swiss administrator remitted the withheld Swiss tax to the local
Swiss tax authority. Once I figure out how to report the lump sum
distribution on my U.S. 1040 return, I will have to send a copy of it
to said local Swiss tax authority and I will get a refund of the Swiss
tax that was withheld. There will be no need for me to file a Swiss
tax return.

--
tb

[Adam H. Kerman]

>>I have no idea. My initial thought, before looking at the treaty, was
>>that he would file his US tax return and claim the foreign tax credit
>>to reduce his US tax liability for the tax paid in Switzerland. The
>>treaty seems to state otherwise. I don't know if the Swiss payor
>>remitted the tax to the Swiss tax authorities or is just holding it
>>in escrow pending receipt of proof of tax payment to the IRS. I do
>>very little international tax work, but the little that I do has
>>taught me where to begin to look for answers.

>The Swiss administrator remitted the withheld Swiss tax to the local
>Swiss tax authority. Once I figure out how to report the lump sum
>distribution on my U.S. 1040 return, I will have to send a copy of it
>to said local Swiss tax authority and I will get a refund of the Swiss
>tax that was withheld. There will be no need for me to file a Swiss
>tax return.

Ah. That certainly simplifies things for you.