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Tax Law (Questions About Taxes)/Tax on Brazil Social security fund


Greetings, I worked in Brazil for 7 years and by law all employers must contribute 8% of every  employee salario to what is called the Fundo Garantia do Tempo  de Servico .. FGTS.

This is the Brazilian pension fund  and now I can withdraw this  money.

My question is this taxable income in the eyes of U.S IRS? I heard it is not as is a service but am not sure

Hi Matt, unfortunately distributions from foreign pensions are considered a taxable distribution.

Depending on whether you paid U.S. taxes on you and your employer's contributions during the relevant tax years (as a Brazil pension contribution would not be eligible to be a pre-tax contribution), you may need to amend your returns for the affected years to report the taxable income. In addition, the growth/income within the pension fund may be considered taxable income each year depending on the exact nature of your pension plan (i.e. whether the trustee was your employer, the Brazil government, etc), your vesting and rights with the plan, etc.

In a nutshell, a Brazil social security fund is not treated the same as U.S. social security. Foreign pension contributions, earnings and distributions are a very complex issue and unfortunately published information is definitely lacking. Hopefully this gives you some direction, but it is recommended that you seek out a tax professional well-versed in these issues to assist you with your reporting compliance and tax liability.

Best regards,

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Randall Brody, EA, MBA, CCP


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