Various questions that burn my brain at the moment

1.   UK national insurance contributions: they seem not to be considered part of tax paid by the US – are they considered anywhere or just “lost”?  let’s say if per UK stub: Total Gross = 40k, Tax = 6k, NI = 2k.  Then, do I tell the US tax man that my Total Gross = 40k and my Tax withheld is 6k, which is effectively 15% tax rate?  I understand that there is an FEIE, but my question more relates to the portion over the FEIE, as my DHs pay with bonus will be over the limit (being in the 40% UK tax bracket).  Should be expect to pay tax to the US in relation to that?

2.   University Superannuation Schemes: turns out that we are part of it, with employer matching.  How are those treated by the US?  How do we show them on various forms?  For FEIE, do we show Total Gross prior to any pension contributions or after?  Where do we stick the employer matching?

Head spinning with the complexity.  Why oh why do they make it so hard?  or is it just silly me?

I'm not sure about the NI payments, but you have two options to avoid double taxation. Either claim the FEIE or claim a foreign tax credit. In your case it sounds like the foreign tax credit would be better.

As for the USS you also have a couple of options; either declare your employer contributions as income on your US tax return, or use the tax treaty to exclude those payments and defer the tax until you begin distributions. The first option may be the best for you as you if you use the foreign tax credit option you may well have excess foreign tax credits that can be used to offset the US tax due on your employer contributions. If you do that then distributions will be either US tax free or at the least have US tax reduced.

I'd definitely contact a professional and get them to do at least one set of tax returns for you. After that you may well be able to do future ones using it as a template, but be aware that the tax code is always changing.

Many thanks!  There is no question now about us seeking professional help.  I am just trying to wrap my head around it before speaking to a professional.  Both, to have it understood at high level but also to help with formulating any direct questions to that professional.  The history is my guide here, as last time we came unprepared to a professional (not tax related) – all of the jargon and approach was lost on both of us, and we felt the time was pretty much wasted.

Am I correct that FEIE is not combinable for married filing jointly?  Does the FTC also follow the same principle?

With the USS, is there any limit on the amount of contributions, like with the 403b and 401k, on either employee or employer portion?  Also, would we just have to add ONLY the employer contributions to the total income? 

UK Social Security Contributions are not considered a tax that is deductible for FTC purposes. This is due to the totalization agreement, which basically means that there is an agreement between the US and the UK that you only pay social security contributions (in the UK, known as National Insurance) to one country, not both. So they are not lost, they are used to cover your pension, state benefits etc. If you worked some years in the UK and some in the US, they are combined in working out your pension. Were you to have paid NI or SS in a country that doesn't have a totalization agreement, then this would be allowable as a foreign tax. Note that the totalization agreement is not a dual taxation agreement; it deals with social security not tax.

Married filing jointly allows a double portion of the FEIE, so $183,000. Nevertheless, as nun said, you may be better off with the FTC. You will not need to pay US tax on the income due to the FTC. You will probably even get a refund - MWP and if you have kids ACTC.

Regarding the USS, I agree with nun.

You will probably even get a refund - MWP and if you have kids ACTC.

The Making Work Pay tax credit is not available for tax years 2011 and later. It was good while it lasted! I agree about child tax credits though.

The Making Work Pay tax credit is not available for tax years 2011 and later. It was good while it lasted! I agree about child tax credits though.

Correct. I assumed that the T/P was still filing 2010 though. For those who haven't yet filed 2008, the stimulus is still available.

Am I correct that FEIE is not combinable for married filing jointly?  Does the FTC also follow the same principle?

With the USS, is there any limit on the amount of contributions, like with the 403b and 401k, on either employee or employer portion?  Also, would we just have to add ONLY the employer contributions to the total income?  

I bet you have to each use your FEIE individually as if you could combine them, then one spouse could make a very small amount allowing the other to exclude way over the individual amount which seems strange.

USS is a final salary scheme. Your employer will put in a certain %age of your salary each year into the pension and will probably require you to contribute too, but the benefit is based on salary and number of years of service. You can make additional voluntary contributions to purchase additional service credits and I believe there are limits to those, but you should talk to your pension person where you work. When you do your US taxes you can either include both yours and your employers UK tax deferred pension contributions as taxable income on your US taxes OR use the tax treaty to defer both yours and your employers contributions from US tax. It may well be advantageous to claim foreign tax credit, include yours and your employer contributions as US taxable income and apply any excess foreign tax credits towards the tax due.

This is due to the totalization agreement, which basically means that there is an agreement between the US and the UK that you only pay social security contributions (in the UK, known as National Insurance) to one country, not both. So they are not lost, they are used to cover your pension, state benefits etc. If you worked some years in the UK and some in the US, they are combined in working out your pension. Were you to have paid NI or SS in a country that doesn't have a totalization agreement, then this would be allowable as a foreign tax. Note that the totalization agreement is not a dual taxation agreement; it deals with social security not tax.

It's true that the UK/US SS agreement stops you from having to pay SS in both countries, but if you are a UK citizen you can choose to pay voluntary National Insurance contributions even if you pay FICA. If the UK citizen works abroad for a foreign employer the NI contributions are greatly reduced (currently they are $230/year), but they still qualify you for full UK state pension after 30 years of contributions.

Also the Totalization Agreement is only used to combine years of contributions to allow you to qualify for a reduced benefit if you wouldn't otherwise qualify for the benefit.

Thank you much!

Unless I am doing it wrong, the Turbo Tax thingy tells me that I have 91.5k to exclude against my income (which is well below the limit), and DH has his 91.5k to exclude against his income.  When I make his income above 91.5k, it clearly plops out that we begin to own tax (that is all before going to 1116).  In either case, that leads me to conclude that the FEIE for us not 183k but rather 91.5k+91.5k.  Or am I doing something wrong here?

For the pensions in the UK, are we each limited to 16.5k?  And is that for both, employee and employer contributions?

Unless I am doing it wrong, the Turbo Tax thingy tells me that I have 91.5k to exclude against my income (which is well below the limit), and DH has his 91.5k to exclude against his income.  When I make his income above 91.5k, it clearly plops out that we begin to own tax (that is all before going to 1116).  In either case, that leads me to conclude that the FEIE for us not 183k but rather 91.5k+91.5k.  Or am I doing something wrong here?

That's correct, you each get $91,500 to exclude against your own income. The individual exclusions can't be combined.

One of you (but not both) can also claim a foreign housing exclusion - have you looked at those details in Turbotax? This allows you to claim more than the $91,500 if you pay rent and utilities over a certain threshold.

If your DH makes more than his total exclusion, he can use the foreign tax credit on the income over the limit, or alternatively he can just not claim his individual exclusion at all and use the foreign tax credit on his entire income. You just have to do the math and see which option works out more favourably in your individual circumstances.

You should definitely consult a tax professional about how to treat your USS pension. It's worth it. For 12 years I just took the exclusion and didn't report my employer's contribution. In my situation, this was disadvantageous to me and had to be amended later. Furthermore, how you treat this can have consequences for how you are taxed when you come to receive your pension. (useless detail: as we speak UK academics are taking industrial action and working to rule because they're changing USS from a final salary scheme to a career average scheme.)

At some point you should also definitely check on your Social Security in detail, particularly about getting 'WEP'd'. Consult the SS people in Baltimore, not london.

I get a princely sum of L60 a month in UK state pension as a result of the Totalization Agreement. Without it, I would have received L4.88 a month.