FERS annuity consider income in Japan?

[M&G]

Hi
Glad to find this forum here as we are semi retired Americans in Japan.
2023 will be our 5th year since we moved to Japan. I am trying to find out what will be consider income in Japan and its impact, My husband, a retired fed receives FERS annuity after tax into US bank from OPM. He took early retirement and under 60, so if there is any reported income in Japan he would need to pay into nenkin until 59. Right now I am employed and he is a dependent on my kouseinenkin. I am trying to figure out if I end my employment, what would be our reported income in Japan and payment to nenkin and kokumin hoken. I am aware that kokumin nenkin has full amount or partial waiver menjo for lower income couple. Whether we qualify would be depending on whether we claim his annuity as income in Japan.

I called kokuzeicho help line in Japanese and was told if he is receiving seifunenkin from US, then it is only consider taxable in US and no need to report as income in Japan. That’s great however I cannot find any written info online about what is consider seifunenkin (government pension). All info I find in Japanese and Enlighten on Japanese income tax says, foreign pension is consider taxable income and we can take foreign tax credit to avoid double tax. Is anyone else on this board also a retired fed and lived more than 5 year in Japan who received annuity before started receiving social security? Did you have to report annuity as an income in Japan via Kakuteishinkoku?
We would also appreciate any links to the site that covers this topic.

[Tkydon]

Hi
Glad to find this forum here as we are semi retired Americans in Japan.
2023 will be our 5th year since we moved to Japan. I am trying to find out what will be consider income in Japan and its impact, My husband, a retired fed receives FERS annuity after tax into US bank from OPM. He took early retirement and under 60, so if there is any reported income in Japan he would need to pay into nenkin until 59. Right now I am employed and he is a dependent on my kouseinenkin. I am trying to figure out if I end my employment, what would be our reported income in Japan and payment to nenkin and kokumin hoken. I am aware that kokumin nenkin has full amount or partial waiver menjo for lower income couple. Whether we qualify would be depending on whether we claim his annuity as income in Japan.

I called kokuzeicho help line in Japanese and was told if he is receiving seifunenkin from US, then it is only consider taxable in US and no need to report as income in Japan. That’s great however I cannot find any written info online about what is consider seifunenkin (government pension). All info I find in Japanese and Enlighten on Japanese income tax says, foreign pension is consider taxable income and we can take foreign tax credit to avoid double tax. Is anyone else on this board also a retired fed and lived more than 5 year in Japan who received annuity before started receiving social security? Did you have to report annuity as an income in Japan via Kakuteishinkoku?
We would also appreciate any links to the site that covers this topic.

1. See the Japan US Tax Equalization Treaty here:
English
https://www.mof.go.jp/tax_policy/summar ... _ST_en.pdf
Japanese
https://www.mof.go.jp/tax_policy/summar ... _ST_jp.pdf

Under the Treaty, your husband is taxable in the US as a US Citizen. Article 1 Paragraph 4(a) states that the US reserves the right to tax its citizens globally.

Article 1
4. (a) Except to the extent provided in paragraph 5, this Convention shall not affect the taxation by a Contracting State of its residents (as
determined under Article 4) and, in the case of the United States, its citizens.


Article 18 Paragraph 2(a) defines Seifu Nenkin, and states:
2. (a) Any pension and other similar remuneration paid by, or out of funds to which contributions are made by, a Contracting State or a political subdivision or local authority thereof to an individual in respect of services rendered to that Contracting State or a political subdivision or local authority thereof, other than payments made by the United States under provisions of the social security or similar legislation, shall be taxable only in that Contracting State.

Therefore, a US Federal Pension would only be taxable in the US.

Article 17 states:
ARTICLE 17
1. Subject to the provisions of paragraph 2 of Article 18, pensions and other similar remuneration, including social security payments, beneficially owned by a resident of a Contracting State shall be taxable only in that Contracting State.
2. Annuities derived and beneficially owned by an individual who is a resident of a Contracting State shall be taxable only in that Contracting State. The term “annuities” as used in this paragraph means a stated sum paid periodically at stated times during the life of the individual, or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration (other than services rendered).


If he were not a US Citizen, his Social Security Benefits and Annuity Income, other than Seifu Nenkin, would only be taxable in Japan and his Federal Pension - Seifu Nenkin - would only be taxable in the US.


Article 18 Paragraph 2(b) states:
(b) However, such pension and other similar remuneration shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that other Contracting State.

But, as your husband is a US National, Article 1 Paragraph 4(a) overrides and he may be taxable on that Social Security and Annuity income, other than Seifu Nenkin, in both Japan and the US, but with Foreign Tax Credits for any taxes paid on that income in the other country.

I think that is the documentary evidence you were looking for.


Additional comments

1. Health Insurance - As a family, you are (should be) paying Health Insurance, either through your employment of the Kokumin Kenko Hoken.
The amount payable this year is based on the household income for the previous year, so you will have to continue to pay at the current level for a year after leaving employment, and then the amount (Kokumin Kenko Hoken) will reduce in the second year due to the lower earnings in that previous year.

2. Kokumin Kiso Nenkin - Basic Pension - It would probably have been to his advantage to pay Voluntary Pension Contributions from the time he arrived in Japan.
Say from 54, to 60, he would have accumulated 6 years' (72 months') Contributions. While this is not enough to reach the normal Minimum 10 Years' (120 months') contributions to qualify for the minimum Japanese Pension at 65, there would have been a couple of options:
a) Continue paying Voluntary Pension Contributions from 60 to 65, bringing the total contributions up to 132 months, thereby qualifying for a 132/480 fraction of the Japanese Basic Pension...
b) Under the US Japan Pension Treaty it may have been possible to qualify for payment with credit for time spent in the US. The Pension would only be paid to the amount of the actual contributions, say 72/480, but at least it would be paid.
You should consult with the local Pension Office (not the Yakusho), as they will know the details of what might be possible.

Unfortunately it is only possible to back pay up to 2 years contributions. If he is 59, he could pay 2 back years, and 6 years to 65, total 8 years, and he may be able to get over the qualification line for time spent in the US, so that he could receive 96/480 of a Japanese basic pension at 65.
You should consult with the local Pension Office (not the Yakusho), as they will know the details of what might be possible.

Voluntary Contributions are currently Y16,590 per month.


If anyone has any corrections, please advise.

[M&G]

Wow thank you so much Tkydon!
Your detail explanation clarifies so much. We appreciate you linked and quoted sections of the treaty as well.

We are so happy to find this forum where we can communicate with fellow retirees.

M&G