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Old 26.01.2020, 17:27
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Pension fund taxes, Moving to USA

Dear All,

I will be moving to the USA in Feb/March to start a job with a new company there. I'm having some trouble figuring out how taxes will affect my Swiss pension fund.

I am on a B-permit in Switzerland and work for a healthcare company. Upon termination of my employment (29 Feb), my pension fund will need to be transferred outside of the company. I've been told that the fund can only be transferred by the 2nd of March. My employment in the USA begins on the 1st of March. I've been told by my tax adviser that any transfer of funds (regardless of the geographical location) after the beginning of my residency in the US (1st March) will be regarded as income and therefore taxed at up to 37%.

I'm wondering if this is indeed true and whether there are ways around this? I'd be grateful for any help.

Many thanks!
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Old 26.01.2020, 19:22
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Re: Pension fund taxes, Moving to USA

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Dear All,

I will be moving to the USA in Feb/March to start a job with a new company there. I'm having some trouble figuring out how taxes will affect my Swiss pension fund.

I am on a B-permit in Switzerland and work for a healthcare company. Upon termination of my employment (29 Feb), my pension fund will need to be transferred outside of the company. I've been told that the fund can only be transferred by the 2nd of March. My employment in the USA begins on the 1st of March. I've been told by my tax adviser that any transfer of funds (regardless of the geographical location) after the beginning of my residency in the US (1st March) will be regarded as income and therefore taxed at up to 37%.

I'm wondering if this is indeed true and whether there are ways around this? I'd be grateful for any help.

Many thanks!

I assume you are a US citizen. If so, you should have paid taxes on your Employer's contribution to your pension fund annually. When you leave Switzerland, you will be liable for the Swiss tax only (assuming you have paid your US taxes annually). You would be wise to move your Pension asset to a lower tax canton (Cantons Schwyz or Zug are lower than Zurich). Note that it is where/which canton the pension assets are domained, which establishes tax treatment (and not where one resides!)

There are many threads on this Forum regarding transfer of Pension assets.

Hope this helps!
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Old 26.01.2020, 19:34
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Re: Pension fund taxes, Moving to USA

Thanks for your post.

I am an Indian citizen and haven't had any taxation from my government on employer contributions to my pension.

I did go through some posts and couldn't find anything concretely summarizing what the implications are. If there are any insights, it would be helpful to hear.
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Old 26.01.2020, 20:02
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Re: Pension fund taxes, Moving to USA

It sounds as though, given the timing of the transfer, you may be liable for US taxes on your pension asset/income. Not sure how you can get around this but maybe others here can assist. Maybe transfer the asset here to another firm/account in Switzerland and move it later?
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Old 27.01.2020, 21:27
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Re: Pension fund taxes, Moving to USA

If you are an Indian citizen but not a US citizen (not having a green card either), then you can transfer your pension fund to India, even if you would move to US for a new job? The US tax only applies to US citizens and a Greencard holders, not a person working in US with a working visa (H1B).

If you are a US citizen as well as Indian citizen, you should just ask a US CPA who is familiar with Switzerland as you wouldn't want to get any chance to mess up the tax stuff with IRS.
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Old 27.01.2020, 22:12
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Re: Pension fund taxes, Moving to USA

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The US tax only applies to US citizens and a Greencard holders, not a person working in US with a working visa (H1B)


Let me introduce you to the "substantial presence test" which might determine that you are, just like a green card holder, a U.S. resident alien.
https://www.irs.gov/individuals/inte...ien-tax-status

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A U.S. resident alien's income is generally subject to tax in the same manner as a U.S. citizen. If you are a U.S. resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U.S. tax return. You must report these amounts whether they are earned within or outside the United States.
https://www.irs.gov/individuals/inte...esident-aliens
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Old 27.01.2020, 22:40
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Re: Pension fund taxes, Moving to USA

Why would a funds transfer be regarded as income?

Tom
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Old 28.01.2020, 09:37
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Re: Pension fund taxes, Moving to USA

I'm going to be in a similar situation soon so I can answer the question. I am also an Internal Revenue Service Enrolled Agent. So here goes:

If you are going to hit the US in March, it is likely you will meet the substantial presence test that the US tax code prescribes, and so on the day you step onto US soil you will become a US tax resident. It means you will be taxed on worldwide income received once you are a tax resident. It does not matter if the income is from a non-US source. Hence if you receive your pension funds while you are US tax resident, then you are subject to US taxes.

It is correct that there are ways to minimize Swiss Taxes (by transferring it to Kanton Schwyz before cashing it out). If subject to taxation in the US (by virtue of it being received while a US tax resident), US tax does tax the pension income at a higher rate, but you can offset the US tax by the Swiss tax that you paid. Effectively you will pay the higher of the two tax rates. Example: You receive CHF 100000 in pension payout while you are a US resident, taxed in Switzerland at say 5% Kanton Schwyz withholding, so CHF 5000 in Swiss Tax in 2020. Then when you have to file your 2020 US tax returns in the following year 2021, and you determine that the effective US tax on the pension income is 15%, so US tax on pension income USD 15000 (assuming CHF 1 = USD 1). To mitigate double taxation, you report the CHF 5000 (or USD 5000) you paid in Swiss Taxes on your US tax return on Form 1116, and then your remaining US tax liability on the pension income in the US is the remaining USD 10000 which you would pay in 2021 on 2020 income (so effectively you would still pay 15% (which is the higher of the two), just that the US gets 10%, Switzerland gets 5%).

Effectively, if you know that the pension is going to be taxed in the US anyway, then there is really no point as a strategy to move the money to Kanton Schwyz to get the lower Swiss tax rate (since you would pay the higher effective US tax rate of 15% anyway.

Therefore, it is imperative that you receive the pension income before you hit the USA. Ask your new US employer if you can delay your start date in the US, and arrive in the US later. If you receive the pension funds before you hit the US (and before you become US tax resident), then this pension income will not need to be included on your US tax return.

This scenario assumes a move in date of March, and that you are not a US citizen nor a US Green Card Holder, and so if the move in date was in the second half of the year, the answer may possibly change (because of the substantial presence test that needs to be applied). One needs to look at the circumstances before giving advice.

I hope this helps.
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