How Do I Calculate Pension Credits for Employees in a Foreign Country?
United States citizens and resident aliens are taxed on their worldwide income. However, qualifying U.S. citizens and resident aliens who live and work abroad may be able to exclude from their income all or part of wages earned abroad, or any amount received as compensation for personal services rendered while abroad.
Individuals who earn taxable income abroad, whether they live in the U.S. or elsewhere, may be able to take a significant deduction on their income taxes. However, this deduction can impact other benefits, such as retirement credits.
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Instructions
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Calculating Pension Credits
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Add up all of the compensation the employee received for the year, whether in direct wages or compensation reimbursement for other services rendered.
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Deduct $92,900 from this total. This amount is the foreign earned income exclusion, which a taxpayer can deduct from their taxable overseas income. This amount should be used for assigning credit to that employee's pension plan.
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Assign credit to the employee's pension plan based on the time worked during the year -- regardless of location -- and the remaining amount after taking the foreign income exclusion.Time spent working overseas for the company will probably still be considered service time, but confirm in your plan rules.
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Tips & Warnings
If you worked abroad, your contribution cost includes amounts contributed by your employer that would not be included in your gross income. This applies to contributions that were made either after 1962 for your work or after 1996 by your employer on your behalf if you performed the services of a foreign missionary.
References
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