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CPF interest and FBAR?

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Re: CPF interest and FBAR?

Postby BBCWatcher » Mon, 20 Jun 2016 1:27 pm

I think you're referring to the current $37,740 total annual contribution limit. That's equivalent to 17 months of $6000/month earnings. (CPF payroll tax does not apply past $6000/month, except to bonus/variable pay.)

My understanding is that $37,740 cap still leaves 5 months equivalent for/of voluntary top ups. Most people don't get 5 months of bonuses. (A happy problem to have if you have it.) A 13th month is traditional and quite common, and some get a 14th month as well. However, I don't think the $37,740 limit is operable for most people based solely on their (and their employers') required contributions.

That said, the $37,740 limit is even less operable during the first two years of PR status when required contribution rates (payroll taxes) are lower. That limit also moves farther away when you reach age 55, then again when you reach age 60, then again when you reach age 65. (Required contribution rates drop at those ages.)

There's also a cap on voluntary top ups, at least of the Singapore tax free sort, if you've already hit the Full Retirement Sum, at least for those under age 55.

The tax optimization part doesn't work unless you're voluntarily contributing from excluded (or exempt, or deducted) income. If you're a U.S. person, and if the income you're using to make voluntary top ups is not U.S. excluded (and/or part of your personal exemption, standard deduction, and/or itemized deductions) then the Singapore tax exemption will be "lost" on you because the U.S. will simply "claw back" that local tax savings via a lower Foreign Tax Credit. Even so, it could still make a lot of sense to make those voluntary CPF top up contributions, from post-tax income. CPF is still an attractive foreign bank account paying a high rate of interest.

Let's explore an example to illustrate how this all comes together (or could). Let's suppose that Christine is a U.S. citizen living in Singapore. She is married to a Singaporean citizen, and they have a young child who is a documented U.S. citizen. Christine earns S$9000/month (gross pay, including employer CPF contributions) and also receives a traditional 13th month bonus. She is under age 55 and has been a PR for more than two years, so her combined, required CPF contribution rate is 37% on S$6000/month. So in this example her total required CPF contributions (employee and employer) are S$28,860 per year (S$6000 times 13 times 0.37) if my math is correct. She has not reached the annual contribution limit, and let's assume she has not reached the Full Retirement Sum either. Therefore, she can contribute another S$7000 as a voluntary top up, and let's assume she does. That S$7000 reduces her taxable Singapore income, dollar for dollar. Let's also suppose that Christine receives S$3000/year in CPF interest credited to her account but receives no other income. Let's also assume her Singaporean spouse has a very high income, works, and let's assume Christine spends S$1500/month on childcare.

On the U.S. side Christine would file as Head of Household. Her spouse has a high income and would not rationally choose to file a joint U.S. tax return with her (even though he could). She can file as Head of Household since she is both married to a non-resident alien spouse and has a documented U.S. citizen child she's caring for. Her gross income is S$117,000 (13 months times S$9000/month) plus the S$3000 CPF interest, and that's her total U.S. reportable income. Of the S$117,000 she gets to exclude S$88,140 via the Foreign Earned Income Exclusion, leaving S$28,860 plus the S$3000 CPF interest as U.S. taxable. She might still get some help via the Foreign Tax Credit. She certainly gets help from her personal exemption, standard deduction, and a couple tax breaks because she has a child (including the Child and Dependent Care Expenses Credit). She'd probably(*) get about S$3600 in tax credit from the Child and Dependent Care Expenses Credit, for example. Anyway, add that all together and she's not going to owe much if any U.S. income tax, in this example. Most importantly, her voluntary CPF top up contribution does not affect this U.S. tax calculation.

Your mileage may vary, of course.

(*) This is a bit speculative. You need nonexcluded, earned income to qualify for this tax credit. Do CPF contributions alone count? I don't know. But if they do, she gets this particular tax credit, a very nice one.

Another interesting question: since compulsory CPF contributions (employer and employee) are nonexcludable via the FEIE, do they still count as earned income for purposes of qualifying to make U.S. IRA contributions (Roth IRA, for example)? Good question! I don't know. "More research required."

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Re: CPF interest and FBAR?

Postby x9200 » Mon, 20 Jun 2016 2:18 pm

BBCWatcher wrote:Yes, it is, and there's some strong evidence available. Value is determined by market participants (immigrants in this case), and when you ask them (as Gallup did/does) they pick the United States ahead of anywhere else. The United States is the #1 most desired destination for prospective immigrants in terms of absolute numbers. (Switzerland is #1 on a per capita basis.) This year there will be about one million adults naturalizing as U.S. citizens. I'm not aware of any other country naturalizing so many people (in absolute numbers anyway), and they're all paying hefty fees to do it.

Obviously U.S. citizenship is valuable. That's just a basic, factual statement about the "marketplace" of citizenships. Beer is valuable, too, but that doesn't mean that everyone likes beer.

As it happens the United States has the lowest total tax burden among developed countries in the OECD. Yes, including federal, state, and local taxes, all of them. It's simply not a high tax country. Situationally it might be a high tax country (as in practically every tax code), but not in terms of mean and median experiences.

To say all that (the valuable citizenship) one would need to determine whether people voting so were aware:
a) of all the involved consequences
b) of what all the other options had to offer.

plus, how the migrants were located prior to migrating to the US.

I seriously doubt any of these were taken into account. It is a bit like asking, what is the most valuable water, and answering, from the Nile river. Yes, it is valuable, but not necessarily for people who have a choice and know what is inside the water, or live around Ganges river.

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Re: CPF interest and FBAR?

Postby BBCWatcher » Mon, 20 Jun 2016 3:06 pm

No it's not. There is no "objective" measure of value. Value is whatever market participants (immigrants, in this case) are willing to pay for something. They're willing to pay an awful lot for U.S. citizenship, and for sure they do, right now, every day. Ergo, U.S. citizenship is valuable. N.B. I did not write that U.S. citizenship is the only valuable citizenship. Just that it's undeniably, factually valuable.

As another example, according to the best available estimate I can find about 6% of U.S. persons living overseas owe U.S. tax on non-U.S. source income. Only a few thousand of them terminate their U.S. personhoods each year (and many, perhaps most, of those few thousand are within the other 94% and don't owe U.S. tax on non-U.S. source income). That is to say that the vast, vast majority of U.S. persons who are within that 6% cohort literally pay to maintain their U.S. citizenships (or permanent residence status). That's value!
Last edited by BBCWatcher on Mon, 20 Jun 2016 10:31 pm, edited 1 time in total.

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Re: CPF interest and FBAR?

Postby Strong Eagle » Mon, 20 Jun 2016 10:15 pm

BBCWatcher wrote:U.S. citizenship always provides some benefits, even if contingent. It is a valuable citizenship...


I became a naturalized American citizen in 1978. To date, the only "benefit" I have received is the ability to vote.

Otherwise:

  1. I was eligible for the draft as a green card holder
  2. I paid exactly the same taxes as a green card holder
  3. I was eligible for in-state tuition as a green card holder
  4. I was subject to exactly the same laws as a green card holder

No doubt that US citizenship is more valuable than some. In my case, I hold Canadian citizenship by birth and British citizenship by right of descent. Hard to call either of those less valuable than US citizenship.

I took up citizenship after 13 years in the country mainly because there was little difference if I did or didn't, except the right to vote, and to not have to update my status every 10 years. Made for less questions on job apps as well.

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Re: CPF interest and FBAR?

Postby PNGMK » Mon, 20 Jun 2016 10:17 pm

I just wanted to say that we could not possibly have a civilized discussion like this on the Singapore subreddit. Any commonsense there is rapidly down voted.
I have gay, black, Asian friends and then JR8.

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Re: CPF interest and FBAR?

Postby neefo » Tue, 21 Jun 2016 4:42 am

do you mean you can take FEIE on the CPF interest? but for me i reside in the US, as a Green card holder. are you saying that i have to pay US tax on the CPF interest that I can't touch? that seems a little weird. Somebody commented to me that CPF is not liquid, so there is not need to report it anywhere for US tax (at least thats how green card holders view it).

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Re: CPF interest and FBAR?

Postby sundaymorningstaple » Tue, 21 Jun 2016 8:50 am

Oh, but it is liquid. You can withdraw for medisave, mortgages, etc. And as you took up US PR you should have already known that the US taxes you on your worldwide income. Additionally, if you naturalize as a citizen in the US you have to renounce your SG citizenship. At that point you can withdraw every last cent of your CPF contribution from the OA SA MA and retirement sum. So, you see, it is very liquid. All of your friends may be in for a rather rude awakening at some point in the future as the US is well aware of the CPF scheme as noted earlier by BBCW.

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Re: CPF interest and FBAR?

Postby BBCWatcher » Tue, 21 Jun 2016 9:54 am

neefo wrote:do you mean you can take FEIE on the CPF interest?

No, certainly not. You cannot take the FEIE on CPF-anything as such.

You can take the FEIE on foreign earned income if you pass either the physical presence test or the bona fide residence test, up to FEIE/FHE limits -- not something a U.S. green card holder can easily do while maintaining green card privileges, by the way. Compulsory CPF contributions (employer's and employee's) cannot be excluded, according to the IRS. Anything (legal) you voluntarily do with properly, legitimately excluded dollars is up to you. One of the things you can do with excluded dollars is...make voluntary CPF top up contributions, if eligible.

but for me i reside in the US, as a Green card holder. are you saying that i have to pay US tax on the CPF interest that I can't touch? that seems a little weird.

Not weird at all in that respect. SMS elaborated, but I would also point out that there are plenty of restricted accounts that attract tax. I mentioned one of them: an ordinary bank Certificate of Deposit (CD). If you go to a bank in the U.S. and open a 5 year CD (for example), the funds remain "locked" for 5 years, but you pay tax on the interest in each/every year in the meantime. You can withdraw funds from the CD (usually), but you pay a penalty if you want to do that. CPF is no different. As SMS explained, CPF monies are fully obtainable, at any time. You've just got to terminate Singapore PR status (perhaps) to do that, but "so what"? That's not the IRS's problem, that's yours.

The IRS has a general "constructively received" standard for income. There's widespread consensus that interest credited to your CPF account, when/as credited, is "constructively received." It's yours, at that moment in time, immediately. That interest lands in your individual CPF account, not in anybody else's. Nobody else owns a share of that interest, and nobody can take it away from you. (Well, not easily anyway.) It's income, it's received, and thus it's U.S. taxable, in each/every year.

Somebody commented to me that CPF is not liquid, so there is not need to report it anywhere for US tax (at least thats how green card holders view it).

No way. The consensus view of U.S. laws and regulations is as written upthread.

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Re: CPF interest and FBAR?

Postby BBCWatcher » Tue, 21 Jun 2016 10:15 am

sundaymorningstaple wrote:Oh, but it is liquid.

Even though CPF is reasonably liquid, liquidity isn't actually an IRS requirement, I should point out.

Let's suppose for example that you perform a job and somebody pays you in the form of a piece of real estate. The real estate is encumbered in some way. For example, there's a widow living in the home, and she has the deeded right to live in the home for the rest of her life. So the properly is "illiquid" in some way -- maybe she lives for 40 more years!

It doesn't matter. It's perfectly legal for somebody to pay you with an "illiquid" asset. But when the income is "constructively received," that's good enough. You have to report the fair market value of the asset you received as income, in the year you received it. Not when you sell it. In this example, when the widow dies and you sell the asset, you then report any gain (or loss, subject to limits) on the sale, and any net gain (but only the gain) is taxable. To extend the example further, if the widow is paying rent then you report the rental income, in each/every year, as income. (Rental property can get a bit more complicated with depreciation, costs, and such, but this is the basic idea.)

I can't think of a situation when the IRS (and Congress, which writes the tax code) concerns itself directly with liquidity in terms of allowing deferral of income, but maybe somebody else can think of such an example. There are occasions when liquidity legitimately affects fair market value. CPF is not one of those occasions.

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Re: CPF interest and FBAR?

Postby BBCWatcher » Tue, 21 Jun 2016 10:37 am

neefo wrote:Somebody commented to me that CPF is not liquid, so there is not need to report it anywhere for US tax (at least thats how green card holders view it).

Whenever "somebody" claims something about the U.S. tax code, here's what you should ask: "That's interesting. Would you show me specifically where, in the IRS's instructions or in the U.S. tax code, you found support for that idea?"

So I'll ask you the same question: where in the IRS's instructions, or in the Internal Revenue Code, do you find support for the idea that you can avoid reporting CPF assets (in required financial reporting) and/or interest income? If you see something in the instructions or in the tax code, great, let us know where it is (form number and line number, for example), we'll take a look, and then we'll discuss its meaning. Otherwise what you've heard from "somebody" is, most probably, somebody's fantasy.

In the meantime, take a look at IRS Publication 525 ("Taxable and Nontaxable Income") and IRS Publication 550 ("Investment Income and Expenses"). If you see anything "interesting" in those publications (or elsewhere) that'd provide special treatment for CPF that you'd like us to review and discuss, let us know.

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Re: CPF interest and FBAR?

Postby neefo » Tue, 21 Jun 2016 11:07 am

thanks. it is amazing. if the interest is taxable, then i'm in trouble isn't it? i never thought that CPF interest is taxable. thats like $4000USD of interest last year that i did not report. oh man..... now i don't know what to do, without getting myself into a bind with the law

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Re: CPF interest and FBAR?

Postby sundaymorningstaple » Tue, 21 Jun 2016 12:26 pm

How long have you been in the US? You can always file amended returns if you haven't been in the US very long. You can also FinCen file backwards voluntarily for I believe 7 years (that may have changed). If you don't you could be in trouble as well. Also, if you didn't report the interest on your 1040 you could have some problems. BBCW will be able to expound on this in great detail.

https://www.irs.gov/individuals/interna ... procedures

https://www.irs.gov/uac/2012-offshore-v ... re-program

https://www.irs.gov/individuals/interna ... procedures

https://www.irs.gov/individuals/interna ... nd-answers

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Re: CPF interest and FBAR?

Postby BBCWatcher » Tue, 21 Jun 2016 1:28 pm

Agreed, it's "not a big deal" assuming you tidy things up reasonably soon. Unlike some other tax systems the IRS is quite gentle to those who voluntarily address a compliance problem.

Let's assume by "last year" you mean 2015. Your U.S. personhood most likely started on the date when you first entered the United States. So if you haven't been reporting CPF since your date of entry, you'll probably have more than 2015 to fix. But let's start with 2015 to explain how this works.

The deadline has not yet passed to file (or to amend) FinCEN Form 114 for 2015. That report is due June 30, 2016 -- a few days from now, as I write this. So you're not too late to file (or to correct) your 2015 report and to include your CPF account -- and all other foreign financial accounts if you missed any others. You are late for 2014 and prior years. If so, one option you have is to file amended FinCEN Form 114 reports (or new reports if you haven't filed that report at all). That online form allows you to specify a reason why you're filing late and even has a drop-down box with popular choices. ("I didn't know," or something similar, is a popular choice.) I have not seen any reports of anybody getting charged a penalty for late filing assuming the late filing is unprompted (you file before the Treasury Department asks why you haven't), non-willful, truthful, and reasonably explained. The Treasury Department has six years to assess penalties or not (for a missing, incomplete, or untruthful report), so at this moment in time you should file (or amend) all the way back to 2009 since that report was due June 30, 2010 (less than six years ago, barely). Of course if you entered the United States in, say, 2011 then 2011 would be your first reporting year. You're only required to file FinCEN Form 114 for the year(s) when you are/were required to file.

Now let's turn to your tax return(s). As SMS points out, you can file amended tax returns (IRS Form 1040X) for any year(s) you need to correct. If you filed your first U.S. tax return as a "dual status" tax return (with both 1040 and 1040NR forms), then for that year you would include only the interest associated with your U.S. personhood time. For example, let's suppose you entered the United States on July 1, 2011. Half the year (the first half) you were not a U.S. person, and half the year you were. So if you had US$4,000 in CPF interest income in 2011 then only US$2,000 (50%) of that would be taxable.(*) So you would amend your dual status tax return accordingly. For tax years after that it would be 100%.

The IRS publishes exchange rates for each/every year, and you can use those to convert from Singapore dollars to U.S. dollars. So you use the IRS's 2011 exchange rate for 2011, 2012 for 2012, etc.

You don't have to pay right away. The "standard" approach is to file your amended return(s); to let the IRS calculate the tax owed, interest, and penalties; and to let the IRS send you a bill. The IRS adds interest at 3% per year (calculated monthly), and the IRS adds a penalty (also calculated monthly), but the penalty is capped at 25%. So you shouldn't owe double the tax owed or anything like that. You'll owe more than the original tax owed, but it won't be too bad. And if you're unable to pay the bill right away because you're short on funds then you can contact the IRS to work out a payment plan (although interest will continue on the unpaid balance).

All of this assumes your failure to report this interest income was inadvertent, and that certainly seems to be the case from what you've posted so far.

Another option potentially available to you, besides standard late/amended filings, is the IRS's "Streamlined Program," a special amnesty program to encourage compliance. If you qualify for the offshore version of the Streamlined Program ("U.S. Taxpayers Residing Outside the United States," which does not require presently residing outside the United States), I recommend it (assuming you otherwise qualify). The offshore Streamlined Program is excellent because, as long as you follow the rules (and don't miss anything else), and if you qualify, the IRS waives penalties (that up to 25% of the tax owed part). The domestic version of the Streamlined Program is much less attractive, and in that case, in general, standard late/amended filings work better. But if you qualify for the offshore version, I would take that deal.

(*) This math is a little bit off since interest compounds, but it's not too far off. Just do the best you can to make this adjustment in your "dual status" tax year, if you had one.

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Re: CPF interest and FBAR?

Postby lcl » Mon, 05 Dec 2016 10:06 am

CPF (including CPF investment accounts) are non-reportable accounts, see:

https://www.iras.gov.sg/irashome/upload ... 0FATCA.pdf (see pg 41, pg 64)

Singapore-US FATCA agreement - https://www.treasury.gov/resource-cente ... 9-2014.pdf (see pg 11 #3, also Annex II)

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Re: CPF interest and FBAR?

Postby sundaymorningstaple » Mon, 05 Dec 2016 11:22 am

lcl, welcome to the forums and thank you very much for the awesome links to the reciprocal documents from both countries with regards to FATCA and CPF.

Would you have any firm links on the treatment of reportable income and how it's treated, tax wise with regard to the Employer's Contributions to the CPF fund (not the employee's as we know that is included in the gross income). I'm under the impression that is has to be added to gross income but it is not allowable as an item which would fall under the Income earned abroad exclusion. Any confirmation on this?

Again, welcome to the board.


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