Please help me, I feel as if I am about to be taxed to death!

Hi, I am not an expert in tax or monetary matters (former liberal arts major) and was hoping that someone would be so kind as to help me out with this:

I moved to the UK this year from PA.  (an income tax state that does not honor foreign tax treaties, which I recently found out!!) Before leaving, I made no efforts to change my domicile, either.  According to PAs website, I am required to pay income tax on foreign income.  I am thinking that it's probably too late to change my voter registration/drivers licence to another US state...and this really isn't a possibility anyway as my entire family is pretty much in PA.  I would really like to keep my drivers licence and stay on the voter rolls there too.  In fact I recently voted Senator Rick Santorum out in the last election and relished doing so!.

I digress, but..........am I correct in my assumption that I am responsible for paying the 22% income tax in UK, UK NI contributions, UK council tax, 17.5% VAT AND PA STATE INCOME TAX?? (not to mention Gordon Browns new "green" taxes of course) The money I make here is a pittance in London but converted into dollars will be a significant amount to pay PA state income tax upon...

Are there ANY tax breaks whatsoever or am I about to be taxed double?

Oy vey, I am really upset right now and am about to burst out into tears.  Life has been pretty difficult financially ever since moving here and despite the fact that my salary here looks quite good translated into dollars, it barely makes ends meet in the UK.  I have never in my life had so little disposable income.  I really can't bear to pay any more taxes.  Please, if anyone can offer any assistance or alert me to any loopholes, credits or suggestions it would really be appreciated.  I am really freaking out.  I work really hard and would like to keep at least a little bit of my wage!

hi Chocoholic,

First of all take a deep breath, second, tommorow AM, do a search for Specialist US/UK tax lawyers and arrange a meeting with them to discuss your exact standing. I'm not a tax expert, but in ALL of my research for a certain venture I'm wishing to put into effect, the US and UK does have a double taxation treaty meaning you don't pay tax twice. It sounds as though you may need to declare certain aspects in order to be included within that treaty and possibly at worst you'll have to pay a penalty for not sorting it out earlier - maybe by declaring domicile it means you don't pay double tax (guya & lizzit will know more ! wait to see what those clever ones say!)
Your payslip will show that Income Tax and NI contributions (pension contributions etc if you've opted for them) will already have been deducted - so you've already paid those. VAT is included within the price you see when spending, so in effect, you've already paid that. Council tax is the one you'll need to fork out from your net pay. As for the new Green taxes, they'll be included into the cost of things, so won't be a separate outgoing from your net pay. That from your posting leaves PA State income tax, and pending the outcome of what the UK/USA tax lawyers say/do I think eventually, you won't have to pay that - reason I say, is that plenty of other posters here have mentioned the equivalent of $80,000 is what you'll need to be making before having to pay tax over in the US - so if your below that, you should be ok.

Please don't take that last little bit as accurate, I'm not an expert - see what the experts say in your situation and I think you should be able to relax a tad and not burst into tears! I also suggest a nice shot of Whisky/ bourbon/ G&T or whatever your fave tipple is !

Hope this helps a bit!

cheers DtM, West London & Slough UK!

DtM, don't dis yourself, you've right on the money.

Chocoholic:  Double tax treaties and domestic laws in both countries ensure that you only pay tax on income once.  You still have to file both countries' tax returns, but you'll pay some to one country, some to the other, and the total combined will be one bite of tax, not two.  PA will probably consider you as having left PA, so you shouldn't have PA tax anymore either.  Rest assured, 95% - 99% of the people living here pay tax in the UK only. 

If you miss out on a loophole, you'll be paying too much tax.  I recommend you see a professional this year, if for no other reason than to put your mind at ease and take away the tears.

As for your nickname, if your accountant manages to wangle you a decent refund, you might want to celebrate with a monthly subscription to the Chocolate Tasting Club.  visit www.chocs.co.uk - I love my monthly treat box!

Thank you for your helpful replies Dennis the Menace and Lizzit!  Sorry to be so melodramatic when I first posted but the fear of working like a dog and paying double taxes is enough to send a girl into a tizzy!

Thank you very much for the link to the Chocolate Tasting Club!!!  I have never heard of it before, so thank you! I checked it out and the price sounds quite reasonable and the chocolates look absolutely scrumptious!  I think that I will treat my bf and myself to that for Valentines Day, regardless of whether my accountant is able to obtain a refund. Chocolate is always a necessary indulgence whatever ones financial situation!

I think both the previous replies AND your accountant are not quite accurate!

Pennsylvania residence is based on domicile (61 PA Code Section 101.3(a)).  PA has not signed a tax treaty with any foreign country.  Your accountant is right on these items (see Rev 611-PO http://www.revenue.state.pa.us/revenue/lib/revenue/rev-611.pdf).

Therefore you are indeed PA resident so long as you are in the UK unless you decide both never to return to PA and to stay permanently in the UK.  This would depend on your facts & circumstances, but if it was your choice you would probably face far greater UK tax bills.

The next step therefore is to ask whether PA will let you deduct the foreign earned income exclusion and the foreign housing exclusion, plus claim credit for UK tax.  Please ask your accountant these 3 questions.

Once you know the answer here, you can arrange to take the maximum deductions and credits in PA.

Giving up filing so that you fail to pay PA tax where it is due would be unethical and indeed could land you and your accountant with serious penalties.

Finally once you have discussed minimising PA taxes you should speak with a UK chartered tax adviser to find out how much of the PA taxes on doubly taxed income could be credited against your UK tax.

To save time & costs I'd suggest using a dually-qualified US/UK tax adviser.

Guya,

I specifically chose the word "probably", not "definitely".  That makes my reply as accurate as possible.  Sure, a CONSERVATIVE position is that she remains PA resident, but you do NOT know her risk aversion profile, nor do you know all the facts on her case yet.

A lot of times, folks like you and me make a sale by spouting lots of incomprehensible and very scary detail (thoroughly accurate, of course) to demonstrate our competency in our core subject.  And that works in a lot of cases. 

But some people just need to know there's a light at the end of the tunnel.  She's already scared, there's no need to scare her further.

Clients choose accountants who resolve their problems.  In most cases, the problem we are resolving is tax in nature.  But not always.  In her case, it's likely to be one who takes away the fear, not one that stokes it.