Basic income tax question

Hi there,

I apologize if this is in the FAQ- for some reason I couldn't access the FAQ link.

I have dual citizenship; I recently attained my British passport and now live and work here. Am I correct in stating that I am protected from double taxation only to a certain income level, after which the U.S. gov't nails me too by taxing every dollar over a certain amount? And if so, what's that dollar threshold in terms of annual salary- is it $80K?

Thanks,

Sun King

Hi SunKing,

For last year's US tax returns it definately was. The exclusion is $80,000 worldwide income and last year the official exchange rate was 1.6421.  Since the exchange rate has been through the roof for most of 2004 I am hoping that the exclusion is raised for this year since our salaries will appear way over inflated to the US.  We will probably find out more in Jan or perhaps Helen our UK-Yankee tax expert will be better able to answer your question.

Julie

good lord, and if that includes bonuses, i'm really screwed.

eeek.  inflate that please!!!!!!

Aimiloo, I feel your pain! I just found a response from Helen under the the "International tax help for dummies" thread where she Helen makes the following statement: Please see the bold bit. 

"Just to clarify the matters, each person gets $80,000 of their foreign source earned income exclusded from taxation if their tax home is outside of the US. If you make $90,000, and your wife makes $30,000, you will get an exclusion of $80,000 for you and $30,000 for your wife. Your additonal $10,000 income will be subject to fireign tax credit. Another words, you will be able to claim a credit for UK taxes that you pay on your US return thereby avoiding double taxation. You should be aware that once in a foreign country, your overall effective tax rate (once you have done your US taxes and UK taxes) is that of a country with the higher tax rate . In this case it is UK.

UK will tax you on your benefits as well as your salary and bonus. So, yes, they will tax the COLA, housing, car allowance , etc....although this may not be the case, if you are coming to the UK for a period of less than 2 years provided that you are sent to the UK by your US employer".

Looks like there is away around paying more taxes then we need to. That is a relief because the exchange rate paints a completely wrong picture when it comes to our earnings let alone our spending power!

Julie

so it means we have to file in the uk now?  that sucks, i thought it was all taken care of.  ARGH.

at least i don't have to think about this until next tax year, but still!

No it doesn't necessarily mean you have to fill out a UK tax form. I didn't have to since the only income I have is my earnings. You are correct about it being taken care of.....its the PAYE thing. (i.e. - Pay as you earn). 

The total UK taxes that you have paid for the year will show on your wage statement from your employer. You will use that figure.

Julie

Hi All,

I'm still a bit confused- Can someone please clarify (Before me executive friend McCork has a heart attack and implodes because I've really scared him with this): If I make the equivalent of $90K U.S., Is the $10K additional that I have over the $80K threshold taxed by the U.S. gov't as well as the British gov't, or can I completely exclude myself from U.S. tax liability on that $10K by simply offsetting with all the taxes I've paid to the UK??

Many thanks,

Sun King

Hi SunKing,

It is confusing. I am sure Helen can answer your question. If she doesn't see this thread then you can email her directly.  h.tanhaie@ntlworld.com

Julie

Here is a link to the IRS website with section on international taxpayers. It may help. 

http://www.irs.gov/businesses/small/international/index.html

Hi All,

I'm still a bit confused- Can someone please clarify (Before me executive friend McCork has a heart attack and implodes because I've really scared him with this): If I make the equivalent of $90K U.S., Is the $10K additional that I have over the $80K threshold taxed by the U.S. gov't as well as the British gov't, or can I completely exclude myself from U.S. tax liability on that $10K by simply offsetting with all the taxes I've paid to the UK??

Many thanks,

Sun King

You will get a US tax credit on the $10k for the taxes you have paid to the UK. This credit will probably eliminate any US taxes.
You MUST file returns in both the UK and the US. If you're doing PAYE in the UK you've already filed, but you will have
to get information together on the UK tax you've paid so you can fill out your US 1040. Programs like TurboTax will help you
doing the 1040 stuff, but if you are concerned it might be good to get an accountant to do the returns.