# US Citizen living in UK



## rg1084 (Feb 3, 2016)

Hi all, I am a US citizen living in the UK for the past 3.5 years. I've finally decided to catch up on taxes and have started the joy of filling them out. 

I've gotten an accountant to complete them but want to double check a calculation. Basically I moved to the UK in July 2012, working half year in the US and half in the UK. My assumption was that foreign tax credit would cover income earned in the UK and I would get a tax return for the US portion. However after calculating state/federal the accountant has indicated I actually owe money because of how US calculate the tax credit and basically saying i paid too low a tax on UK income vs. what I would have been taxed in the UK. 

Without the UK portion I would get a $2k return for the US bit. 

Does this sound correct? Any help is appreciated. 

Thanks,


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## Bevdeforges (Nov 16, 2007)

For that first partial year, it depends whether you're taking the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC) for the UK part of your salary. It sounds like your accountant is using the FTC. But it can also be a function of what your income is/was between the two countries.

The FEIE simply "excludes" the earned income (i.e. salary) you made while overseas - so only the UK portion of your income for that year. There is, however, a cap on how much you can exclude, and in any event, for a partial year (like your first year abroad) the allowable FEIE is limited to the portion of the year that you were overseas.

But it sounds like you should ask your accountant to walk you through the calculation so that you can see where that US tax obligation is coming from.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Look for IRS Form 2555 in the package your accountant prepared. Do you see one for tax year 2012? If so, your accountant took the Foreign Earned Income Exclusion for you for that part of the year (from July onward) when you were living and working in the U.K.

If you don't see Form 2555 (or 2555-EZ) then there are at least a couple possibilities:

1. Your accountant decided to take the Foreign Tax Credit and skip the FEIE. That could be better or not.

2. Check tax year 2013. Did your accountant prepare Form 2555 for that tax year? If so, he/she is taking the FEIE...but missed the FEIE for 2012. Yes, he/she can take the FEIE also for the period starting from when you moved to the U.K. Sometimes accountants don't know that. (Sometimes they don't also know that taking the FEIE is a choice, not an obligation.)


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## rg1084 (Feb 3, 2016)

Thanks both. So the accountant did both the FEIE and FTC. FEIE shows slightly less money due to IRS but both ultimately have me paying back. The accountant recommends going with FTC even though it is more to avoid denial of the exclusion and screwing myself for it on the future. 

What he did say though is that it seems I paid less tax on UK income then I would have in the US so the IRS calculation accounts for this and ends up taxing me for it. Basically I paid 14% in tax for UK income from Jul - Dec 2012 (excluding National Insurance). I was in the 20% UK tax bracket at the time and believe I would have paid 25% in the US for that income in 2012. So with that being the case would I have to pay the IRS the difference in tax that I paid? 

What I have also noticed is in the return he has done line 44 does not include the tax paid in the UK. Is that correct? 

If I were to include UK tax paid on line 44 then I would get a refund. 

Thanks for the help.


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## BBCWatcher (Dec 28, 2012)

rg1084 said:


> The accountant recommends going with FTC even though it is more to avoid denial of the exclusion and screwing myself for it on the future.


I don't understand this argument. It's probably backwards, in fact.



> What I have also noticed is in the return he has done line 44 does not include the tax paid in the UK. Is that correct?


In the 2015 edition of IRS Form 1040 the Foreign Tax Credit rolls up to line 48. In the 2012 edition it's line 47. It's clearly labeled so should be easy to spot.


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