Tax Type
Individual Income Tax
Description
Foreign pension
Topic
Taxable Income
Date Issued
05-22-1989
May 22, 1989
Re: Request for Ruling: Individual Income Tax
Dear******************
This will reply to your recent correspondence regarding the applicability of the Virginia individual income tax to a foreign pension.
FACTS
********* ("The Taxpayer"), a foreign citizen married to an American, is a lawful permanent resident of the United States. The Taxpayer's taxable income includes a foreign government pension, which is taxed at 25% by the foreign government. The Taxpayer claims the foreign income tax credit for federal income tax purposes to account for the foreign income tax paid on the pension. The Taxpayer requests a ruling whether he may be allowed a subtraction from federal adjusted gross income for the foreign tax paid for Virginia income tax purposes.
RULING
Under federal income tax law, a taxpayer may choose to deduct foreign income tax paid or accrued, or may apply it as a credit against federal income tax. The deduction for foreign income tax is passed through to Virginia due to conformity when a taxpayer elects to itemize for federal purposes. Virginia tax law does not, however, have a credit provision comparable to the federal foreign income credit.
While Virginia tax law provides a subtraction for certain types of foreign source income, pensions resulting from services performed in a foreign country do not qualify for the subtraction. See the enclosed copy of a recent ruling letter the department issued on this matter.
Virginia Code §58.1-332 provides a credit for taxes paid other states, but the credit is not available in this case. Virginia Individual Income Tax Regulation 630-2-332 specifically states that the credit "is applicable only to income tax paid to another state and does not apply to taxes paid to any foreign country.
Thus, I have no basis for granting a deduction from Virginia taxable income for a foreign pension or foreign income tax. The total amount of the foreign pension reported on the federal return should be included in Virginia taxable income.
If you have any further questions, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner