Incredibly confused on how and where I should be paying tax!

Thanks for that masterblaster, but I'm afraid that anytime more information is posted on this thread I get more confused From the posts in the links you gave, my understanding is the the USS viewed as part of my UK taxed income, and thus as long as I'm under the $85,700 threshold I can just claim it within my income and won't owe tax on it. Is that right?

Code Section 911 (the foreign earned income exclusion) specifically says that income reportable under 402(b) (employer contributions to non-qualified pensions) do not get included in income excludible under Section 911.  So not you cannot exclude the contributions under domestic US law.

Code Section 911 (the foreign earned income exclusion) specifically says that income reportable under 402(b) (employer contributions to non-qualified pensions) do not get included in income excludible under Section 911.  So not you cannot exclude the contributions under domestic US law.

Don't worry too much, you have a couple of options, you can defer US tax on your UK tax contributions by invoking the US/UK tax treaty. However, a better thing to do is you put your UK pension contributions and any employer match on your US return and use foreign tax credits and allowances to offset your US tax bill.

I believe that you can use the foreign earned income exclusion for your contributions and then you use excess UK tax credits and your US allowances to offset the tax that the IRS will charge you on your UK employer's contributions. Net result should be a zero or very small US tax bill and when you take money out
there will be little US tax liability.

mastrblaster - sadly the position you are suggesting on employee contributions is contrary to the IRS Code so could result in significant penalties because it is without substantial authority. I suggest you read IRS Code section 911 and 402(b) plus related Regulations if you want help getting to sleep one night!

mastrblaster - sadly the position you are suggesting on employee contributions is contrary to the IRS Code so could result in significant penalties because it is without substantial authority. I suggest you read IRS Code section 911 and 402(b) plus related Regulations if you want help getting to sleep one night!

Thanks for the suggested reading, the thing is, I have this forum to put me to sleep . My statement was based on this bullet point on the IRS website in a list of things excluded from FEI

http://www.irs.gov/publications/p54/ch04.html#d0e2991

"Amounts you include in your income because of your employer's contributions to a nonexempt employee trust or to a nonqualified annuity contract."

It only excludes employer's contributions from the FEI. After looking at IRS 911(b)(1)(B)(iii) I see your point. And yes I have no life and my girlfriend thinks it's weird that I use the internet to look at tax legislation rather than porn!

I don't actually use the foreign earned income exclusion I just declare everything wages, pension contributions and use my allowances and FTC to offset US taxes. Seems to be working ok, in Lizzit's words

"It's on the US return; you claim the income, and you then take a foreign tax credit on the US return for all the UK foreign taxes paid.  All lumped together in the basket of General Limitation on Form 1116"

The result is you pay the US tax at a 0% rate and withdrawals will be close to US tax free. From my limited knowledge it seems that the FTC is better to take than the exclusion if you live in a country where your income tax bill is larger than the US as you can use excess FTC to pay the tax on pension contributions and you get to carry over any excess credits to future years. It's more complicated than the exclusion, but worth looking at for UK residents.

superl99, it's good that you are in the UK pension scheme, I'd advise you to talk to either

www.britishamericantax.com

or

www.towertax.com

They are two small firms that may be able to help you get your tax returns in order. Once they have done your taxes for one year you can probably follow their template for future years.