Over 80k?

Well, I'm one of the fortunate expats who's making over $80,000 a year in the UK (specifically, £60,500, plus likely bonuses, but that remains to be seen).  I just moved here in December, so I don't suppose I'll have earned enough to worry about it for this year, but next year is when the double taxation will hit, correct? 

Any suggestions for what I can do to avoid this?  I'd read somewhere that some people work out unqiue "payment schemes" with their employers, wherein potions of their sallary are paid as housing or car allowances.  Does this work?  Any specifics?  Probably doesn't matter anyway, because my employer's finance department was not too keen on that idea.

So, what can I do to minimize the double?  Any thoughts or suggestions for where I should go to research this?  Thanks!

Helen can answer it, but I thought if you made over $80k you could claim the foreign taxes you were paying to the UK?!  Hope to find myself in your position one day so it'd be good to know!

Yes Helen can help us out better on this topic.

You can and do claim your foreign taxes paid but the fact that there is a cap $80k...worries me that if you are over it you may have to pay tax to the US gov over and above anything beyond $80K.

Last year for 2003 taxes I only worked here for six months so I had no issue. This year is another story with working the full year and the incredibly over inflated conversion rate. Given the fact at a certain income level over here you are paying 40% tax I can't imagine having to turnaround and pay the US gov as well...even if you are over their so called exclusion.

Julie

Doesn't one have to be a full calendar year out of the US to get the benefit not having to pay US  tax on the first $80000 earned?  That is the assumption I am under.

bvamin

I found an interesting article which discusses using the $80,000 earned income exlusion and the foreign tax credit. 

Here are a couple of interesting quotes from the article...its worth the entire read! 

"This exclusion is an alternative to the foreign tax credit , which is often a better choice for those who work in high tax foreign countries. The exclusion is more beneficial for those who work in low tax countries". 

"The major industrial countries of the world have adopted similar rules for citizens (and businesses) that work in multiple countries. The U.S. tax code provides for a tax credit for taxes paid to other countries - but only up to the amount of taxes that would have been paid to the U.S. on the same income. In countries that impose high rates of tax on earned income, the foreign tax credit may be a better option than the exclusion on foreign earned income".  

The link for the site: http://www.offshorepress.com/vkjcpa/foreigncredit.htm

Julie

bvadmin,
As far as I'm aware, the exclusion of UK income up to $80,000 applies even in the year that you've moved to Britain.
We moved in June 2002 and we excluded the income we received in 2002 at our British jobs.  Obviously, you can't exclude the income you might have earned in the States before you moved over to Britain.

Matt

Hi guys

First of all, you can take the exclusion and foreign tax credit on your return in the same year. It is not the case that you have to choose one or the other. If you have made more that $80,000 a year, the remaining amount of your foreign source income is subject to foreign tax credit (i.e. you can claim a credit for UK taxes paid on your US return). The form to claim this is 1116. Don't forget this is not a dollar by dollar credit and you need to work through the form to work out the correct amount of credit to take.

Let me know if there are any questions.

Helen