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by BBCWatcher » Sun, 19 Jun 2016 8:15 am
Here's the general consensus as best I can determine it. I'm going to try to cover everything CPF-related in the U.S. context in one post.
1. Although slightly ambiguous, it appears that CPF accounts are FinCEN Form 114 reportable. (And IRS Form 8938 reportable as well.) There's no harm in overreporting while there is harm in underreporting, so it's best to err on the side of reporting.
2. CPF interest is U.S. reportable and taxable as it is credited, in each year.
3. Employer and (on edit/corrected; see the follow-up post below) employee contributions are U.S. reportable and taxable when made, in each year, and are not earned income for purposes of the Foreign Earned Income Exclusion. (The latter part is a bit strange, but the IRS itself said as much many years ago in a letter and hasn't said otherwise since.) Hypothetically, if somebody else can pay into your CPF account -- a one-time bonus paid by the government, for example -- then that'd probably be U.S. reportable and taxable income, too. (One exception: government social welfare payments based on need are generally not U.S. taxable -- for example, hypothetically, if the government tops up your account because you're poor.)
3A. On edit: If you became a U.S. person after some or all of your/your employer's CPF contributions were made, and after some interest was paid, then the untaxed portion is probably U.S. reportable and taxable on a pro rata basis upon withdrawal. (Double check, but that's my understanding.) For example, if your CPF account balance is $50,000 on the date you became a U.S. person you would report and pay tax on interest (and contributions, if any) from that date forward. Let's suppose you start to withdraw after another $10,000 of interest has been paid (and $0 contributions in this example, just to keep it simple). The account balance is now $60,000. You withdraw $6,000. At that point, $5,000 (the pro rata untaxed portion) is U.S. reportable and taxable, and $1,000 (the additional interest already reported and taxed) is not U.S. taxable. (This example also ignores MediShield Life premiums, if applicable. MediShield Life premiums tend to drive down your CPF account balance if you have no further contributions, but they would not affect the pro rata allocation between previously taxed and untaxed CPF monies.) Pro rata tax treatment makes sure that each/every dollar is taxed once and only once. Dollars prior to your U.S. personhood are taxed only upon withdrawal, while dollars flowing in (and accruing) during your U.S. personhood are taxed as/when they flow. Consequently the timing of your withdrawal(s) is(are) important. For example, it may make sense to withdraw CPF monies (if permitted) before becoming a U.S. person -- although I wouldn't go overboard with this idea since, even U.S. taxed, CPF is quite attractive.
4. If you direct any of your CPF funds into the investment products allowed then those investment holdings are almost certainly PFICs and need to be handled as such (generally with annual mark-to-market elections, probably also with foreign trust reporting). I recommend avoiding that (if you haven't already avoided that). Stick to traditional CPF SA. Otherwise you've got IRS Forms 8621 and 3520 to deal with.
5. You cannot take any Foreign Tax Credits on the U.S. side for CPF payroll taxes or for MediShield Life premiums. Foreign Tax Credits are only allowed for foreign income taxes, and CPF has none.
6. MediShield Life does not count as Minimum Essential Coverage in the U.S.
7. CPF withdrawals (when you retire, presumably) have no particular consequences given the above, except....
8. CPF funds are part of your estate for U.S. estate tax purposes.
9. CPF funds are part of your assets for determining whether you are a "Covered Expatriate" and for Expatriation Tax calculations.
10. You have to inform the U.S. Social Security Administration of any CPF benefits when you apply for Social Security benefits -- or at least tell the truth if asked. CPF benefits probably won't affect your Social Security benefits, although they might through something called the Windfall Elimination Provision.
11. Generally, since CPF gains are U.S. taxable, if you retire in the U.S. (or as a U.S. person) you'll want to tap CPF as much as allowed (if you need the funds) before you tap U.S. tax free and tax deferred retirement savings such as IRAs and 401(k)s. But "it depends." CPF is high yielding for a safe investment, so that's not a hard and fast rule by any means, especially if you're in a low tax bracket.
Last edited by
BBCWatcher on Mon, 20 Jun 2016 9:47 am, edited 7 times in total.