Japanese "Social Security" and US Tax Filing (& Exclusion?)

[TaxMax]

I have a few questions related to living overseas and filing US taxes. Here's my situation in a nutshell:

I'm a US citizen in my 50s and a permanent resident of Japan. My wife is a Japanese national and non-resident of the US, although we make an election for her to be treated as a resident alien for the purposes of filing a joint US income tax return.

I'm still working, and I file a US Form 1040 along with a Form 2555 each year. Soon my wife, who is not working, will receive Japanese "nenkin" (the Japanese equivalent of US social security), so I want to plan ahead.

Questions: How should my wife's Japanese "nenkin" income (a very small amount, which would likely be her only income for the year) be treated for US tax purposes? For instance, would it be entered on 1040 Line 20a (Social Security Benefits); or should it be listed on Form 1040 FEC (Foreign Employer Compensation and Pensions)? And if either is OK, is there a benefit to using one approach over the other?

And then, most importantly, would the amount of her Japanese "nenkin" be excludable from taxation on a US Form 2555?

[rayb]

Tax Max,

I'll only address the Form 2555 issue, as I've had the most experience with that. The only income excludable is "earned" income (wages and self-employment net). Passive and pension incomes are not excluded in the Form 2555 calculations. Whether your wife's Japan retirement income is reportable or taxable is an entirely different subject about which one could write pages of discussion, as there are a few different directions you might go on that subject. There might be some valid argument for keeping her off your tax return, unless you gain a taxable benefit having her on the return, because her income, since she is not a U.S. citizen and her income is not U.S. origin, is not required to be reported to IRS

--Ray B

I have a few questions related to living overseas and filing US taxes. Here's my situation in a nutshell:

I'm a US citizen in my 50s and a permanent resident of Japan. My wife is a Japanese national and non-resident of the US, although we make an election for her to be treated as a resident alien for the purposes of filing a joint US income tax return.

I'm still working, and I file a US Form 1040 along with a Form 2555 each year. Soon my wife, who is not working, will receive Japanese "nenkin" (the Japanese equivalent of US social security), so I want to plan ahead.

Questions: How should my wife's Japanese "nenkin" income (a very small amount, which would likely be her only income for the year) be treated for US tax purposes? For instance, would it be entered on 1040 Line 20a (Social Security Benefits); or should it be listed on Form 1040 FEC (Foreign Employer Compensation and Pensions)? And if either is OK, is there a benefit to using one approach over the other?

And then, most importantly, would the amount of her Japanese "nenkin" be excludable from taxation on a US Form 2555?