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us expat tax guide – united kingdom

Who needs to file US taxes as an American expat in the UK?

If you are an American expat living in or moving to the UK, you are still required to file US taxes. 

This requirement applies to all US citizens, dual nationals, and Green Card holders, regardless of whether they earn income in the US. 

The US tax system taxes citizens on their worldwide income. For instance, if you have an employment contract in the UK, it must be reported on your US tax return, even if you earn no income in the US.

Who doesn’t have to file a US tax return when living in the UK?

An example of an American in the UK who does not have to file a US tax return is a university graduate with an internship earning only €6,000 for the year. As a single filer, this amount is below the US$14,600 threshold, so no filing is necessary.

What is the threshold for Americans in the UK to file US tax returns in 2024?

Most US expats in the UK will need to file a US tax return. The filing thresholds are as follows:

  • Single Filer: Must file if earning more than US$14,600.
  • Married Joint Filers: Must file if earning more than US$29,200.
  • Head of Household: Must file if earning more than US$21,900.
  • Married Filing Separately: Must file if earning more than US$5.

Additionally, any self-employment income over US$400 annually (from any country and in any currency) also requires filing a US tax return​.

What is the Head of Household filing status on US tax returns?

The Head of Household filing status offers significant tax benefits if you qualify. You are considered a Head of Household if you meet these criteria:

  • Provide over 50% of household expenses: You must cover more than half of the household costs.
  • Unmarried or considered unmarried by year-end: You must be single, divorced, legally separated, or married to a non-American or non-Green Card holder by December 31 of the tax year.
  • Have a dependent: You must have at least one dependent.

For example, if you are single and living with a dependent child, you can file as Head of Household. This status allows you to claim higher standard deductions and potentially the Child Tax Credit Refund if your income is not too high.

What counts as a dependent when filing US tax returns as a Head of Household?

  • Qualifying Dependent: You must have a qualifying dependent, which can include a child, parent, or other relative who meets IRS guidelines.
  • Living Arrangements: The dependent must live with you for more than half the year, except for a dependent parent.
  • Household Costs: You must pay over half of the household costs. This includes expenses such as rent, utilities, and food.
  • Dependent Parent Exception: For a dependent parent, they do not need to live with you, but you must cover more than half of their home expenses, which can include costs for their principal residence, such as a nursing home or assisted living facility.

What counts as household expenses to file as a Head of Household?

To qualify for Head of Household, you must pay over 50% of certain household expenses, including:

  • Rent
  • Insurance
  • Property taxes
  • Mortgage interest
  • Utility bills
  • Repairs and household maintenance

How does the US-UK Tax Treaty and Totalization Agreement work?

The US-UK Tax Treaty aims to prevent double taxation for US expats in the UK. This treaty covers income tax and capital gains tax, while the Totalization Agreement addresses social security taxes.

What is the Totalization Agreement?

The Totalization Agreement between the US and the UK prevents the taxation of social security twice. 

It’s recommended that if you plan to live in the UK for up to five years, you should continue paying US Social Security and Medicare taxes. However, if you stay longer or are unsure about your duration, you should pay UK National Insurance contributions instead.

US expats working for a US employer in the UK, or those who are self-employed, typically need to continue paying US social security contributions. If working for a foreign firm, you generally do not have to pay US social security. 

Contributions to the UK National Insurance can count toward US social security benefits for retirement if you live in the UK for an extended period.

How does the Foreign Tax Credit work?

US expats in the UK who pay UK taxes can benefit from the IRS’ Foreign Tax Credit, which reduces US tax liability. This credit applies to foreign income taxes imposed on you, such as taxes deducted from wages..

How to claim the Foreign Tax Credit?

To claim the Foreign Tax Credit, file IRS Form 1116 with your US tax return. 

Convert 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 day of the transaction.

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