U.S. TAX GUIDE IN THE UK
Who needs to file US taxes as an American expat in the UK?
If you’re an American living in the UK, you must file US taxes if you are a US citizen, dual national, or Green Card holder, regardless of where you earn your income.
The US tax system taxes citizens on worldwide income. For example, if you have a job in the UK, you must report this income on your US tax return.
Who doesn’t need to file a US tax return in the UK?
An example would be a single filer earning below the US$14,600 threshold, such as a university graduate with a UK internship earning only €6,000 annually. This amount falls below the filing threshold, so they wouldn’t need to file a US tax return.
What is the filing threshold for US expats in the UK for 2024?
The filing thresholds for US expats in the UK are:
- Single Filer: More than US$14,600
- Married Joint Filers: More than US$29,200
- Head of Household: More than US$21,900
- Married Filing Separately: More than US$5
- Self-Employment Income: More than US$400
What is the Head of Household filing status?
Head of Household status offers significant tax benefits if you meet certain criteria:
- Provide over 50% of household expenses
- Unmarried or considered unmarried by year-end
- Have a dependent living with you for more than half the year, except for dependent parents
What qualifies as a dependent?
A dependent can be a child, parent, or other relative who meets IRS guidelines. They must live with you for more than half the year (unless they are a dependent parent) and you must cover over half their expenses, including rent, utilities, and food.
What counts as household expenses?
To qualify as Head of Household, you must pay over 50% of household expenses, which include:
- Rent
- Insurance
- Property taxes
- Mortgage interest
- Utility bills
- Repairs and maintenance
How does the US-UK tax treaty and Totalization Agreement work?
The US-UK Tax Treaty prevents double taxation on income and capital gains, while the Totalization Agreement addresses social security taxes. This ensures you do not pay social security taxes to both countries.
What is the Totalization Agreement?
This agreement prevents double taxation on social security. If you live in the UK for up to five years, pay US Social Security and Medicare taxes.
If longer, pay UK National Insurance contributions. Contributions to UK National Insurance can count towards US social security benefits if you stay in the UK long-term.
How does the Foreign Tax Credit work?
US expats in the UK paying UK taxes can use the IRS Foreign Tax Credit to reduce US tax liability. This credit applies to foreign income taxes deducted from wages.
How to claim the Foreign Tax Credit?
File IRS Form 1116 with your US tax return, converting all foreign taxes paid into US dollars using the IRS’s preferred method, either by the transaction date rate or the annual average exchange rate provided by the IRS. For capital gains, use the exchange rate on the transaction date.
