What if I earned more than $85,700 this tax year?

Hi everyone!

Tax help!!!

Though I'm a lucky one, before you think that I'm rich :-), I earned more than the threshold only because of a large amount of back pay due from the previous year (from which the tax and pension were taken out).  That, combined with the £1=$2.0018 exchange rate has catapulted me over the $85,700. 

I am a dual citizen, have lived in the UK for three years, and am planning on staying in the UK (bought a house, live here permanently, etc.).  I meet the residency requirements, etc., and haven't had to pay taxes in the past.  I've paid all of my UK taxes, work for a UK company, etc., so pretty straight forward. 

But I ran across this article and had a mini panic as it mentioned that an expat living in France was going to owe US taxes:

newcomer link: http://www.iht.com/articles/2007/12/28/america/ATAXES.php [nonactive]

I guess that the bottom line question is. . .do we pay more tax doing the UK PAYE in the 40% tax bracket than our relatives on the other side of the pond?

All best, Kirsty

Hi Kirsty

I can't give you a definitive answer to this, but my understanding is from this article is that when you breach the $85,700 limit, you can still offset your US tax liability using Foreign Tax Credits (form 1116).  (I'm a UK citizen, but I've been doing my American wife's tax returns for a while - we haven't reached this yet but may do next year). As the UK and US tax rates seem comparable, I would hope there isn't much US tax liability....

One piece of advice I would give is that, if you are going to get official IRS guidance, call the Philadelphia office, and don't go to the London consulate (if that is an option). I did this when I returned to the UK in 2001 , and the advice they gave me about how to file my return for the US/UK split year was wrong (as the Philadelphia office later confirmed) and it cost me $300, which could not later be recovered.  Plus I found them very dismissive and arrogant (they didn't really listen to me which I think was the source of the problem)....

All the best
Roger

Thanks, Roger.  I have contacted the Philadelphia office and found THEM most unhelpful (actually really nasty and overly argumentative) and the London IRS office very helpful.  I guess it just matters with whom you speak.  But thanks for the warning; I'd rather have it done correctly!