# US Citizen moved to the UK as a kid - Tax & FBAR?



## sid351

Hi there,

Firstly, I'm a US citizen living in the UK (for about 14 years now).

I'm now 26 and in October will be 27; I'm also male, if it makes any difference and I have a Social Security Number (although I've never made any payments to it).

I moved when I was 12 and didn't realise until recently that I'd need to file US taxes (I don't think my mother realised either, but we don't talk all that much anymore.)

So, now I know I should be filing, and I'd like to understand how to get the ball rolling.

I don't earn more (nor have I ever [yet ]) than the Foreign tax limit thing, and I don't have any real savings at the minute (as in I don't have any).

My grandparents (in the US) passed away and have left me some inheritance when their property sells, so when that eventually happens I will probably break the threshold for the FBAR (if I understand it correctly) when I deposit the cheque in my UK bank account.

I've had some advice from a few different accountants (some in the UK, one in the US) that suggest that as I don't earn enough to owe anything that I shouldn't bother filing. This is advice that I'm guarded against to be honest, I'm not sure if I agree with that mentality.

My questions are:

-Should I file regardless of the fact that I don't earn more than the limit, or have any savings yet?

-If I do file, do I really need to do historic filing as well? If so, is this 3 years or 6?

-Do I always need to file a FBAR even if I don't have any accounts over the limits?

-What happens if my girlfriend and I decide to buy a house with a joint mortgage? (Let's leave the whole girlfriend / fiancee / wife thing at the door if we can - this isn't going to happen until the inheritance gets released anyway and who knows what could happen in that time (it's been nearly 2 years already))

-Is this something that I'll be able to do myself on a yearly basis or should I look more seriously into finding an accountant that specialises in US tax matters?

-Has anyone got a sure-fire way to stay on top of the rules as and when they change?

-Has anyone got any links that could help me get on top of this headache?


P.S.

Also, I have a question about registering to vote (better late than never!):

The last State I lived in was Wisconsin, however most of my family live in New Hampshire and as I grew up there (for the most part) that's where I would consider home. Can I register to vote in NH, or do I have to register to vote in Wisconsin?


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## Bevdeforges

OK, first of all, the way it works for US taxes is that you are supposed to file a tax return whenever your worldwide income exceeds the filing threshold for your filing status. (The foreign earned income exclusion limit and whether or not you will wind up having to pay are completely irrelevant.) For a single person (under 65 years of age), the filing threshold was $9750 for 2012 taxes. Any year that your income was less than that, you can just forget about.

Getting an inheritance from your grandparents doesn't affect your filing status or need to file, until or unless the interest you receive from wherever you stashed the inheritance starts kicking in.

Filing an FBAR is completely separate from the income tax filing. If you have a total of $10,000 or more in your foreign (i.e. non-US) accounts, you should file, whether or not you had to file an income tax return for that year. The FBAR is just an information form - they're primarily interested in having the details about your foreign accounts, along with a good faith estimate of the high balance in each account for the year. (If in doubt round UP rather than down - it won't affect anything for your taxes.)

At your age, I wouldn't bother to try to back-file. It's probably more hassle than it's worth just now. Just file your return for 2013 early next year and keep on going from there. To find out the latest permutations, go to the irs website (Internal Revenue Service) and check the publications and forms section. Publication 54 gives you all the info you'll likely need for filing from overseas, and each year Publication 17 (sort of the master guide to US taxes for individuals) has a section in the front about "What's New." 

If and when your girlfriend/fiancée becomes your wife, then you'll have to make the decision whether to file "married, filing separately" or "married, filing jointly" (which brings all her worldwide income into the picture). 

As far as voting is concerned, there are a few states that allow overseas citizens to vote from the last address that their US citizen parents had. AFAIK this is meant to apply to US citizens born overseas who have never lived in the US. According to FVAP Federal Voting Assistance Program - Reference/Reports - Never Resided in the U.S.? New Hampshire is one of these states, but they do require that you have never lived in the US in order to use the address from which your parents are eligible to vote.
Cheers,
Bev


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## sid351

Thanks Bev! (Sorry if this post sounds a lot like an echo, I just want to make sure I understand everything well enough)

Just to complicate things, my girlfriend isn't a US citizen, so I presume I would just have to file separately (as really her money means nothing to the US, right?)

Thanks for clearing up the FBAR & Taxes. I thought they were linked, and reading up on it (and the link to the FBAR FAQ not working) wasn't helping. 

Just to clarify, if I don't have more than $10,000 (as an aggregated total) in foreign financial accounts at any one time during the year I don't need to file an FBAR (although if it's likely to be $9000 upwards it probably wouldn't hurt to file one).

I presume this is credit only, so a mortgage (or credit card debt) wouldn't come into it but stocks and shares would (and I wouldn't be able to deduct my debts from the credits). E.g. $10,001 in savings & $200,000 in debts (a mortgage) still needs an FBAR.

Am I going to need to pay special attention to work "perks"? I'm starting a new job soon and they offer some medical insurance packages including a Death in Service thing where my chosen heir (I feel so regal!) would get 4 x my annual salary if I die in the line of work (which lets be honest will not happen - I work in IT). Would things like that need to be included in my rounded up estimate? (It's the "an insurance policy with a cash value" wording in the FBAR form that has me confused.) Also, they do a company pension scheme, I presume this will come under the aggregate for the FBAR, right?

Once the inheritance comes across and I deposit it (or you know, I sort my life out and start SAVING money) I'll have to file an FBAR, but the inheritance money itself won't be liable for US taxes, just the interest eventually earned, which will be taxed here by the UK anyway (unless it's in a Tax-Free ISA ...would that cause a more severe headache?) and will still probably fall under the Foreign Earned Income Exclusion (FEIE) amount. If I go over the FEIE, then I owe Uncle Sam some money.

I won't get in trouble for just quietly starting to file will I? Would I be better off to follow the streamlined thing (New Streamlined Filing Compliance Procedures for Non-Resident)? I've heard you don't want to rattle the IRS's cage 

Do I need to do anything special with regards to Social Security, as I haven't been paying anything (well, to the US Government - the UK however happily take my money)?

I'm realising now that ignorance really is bliss. I was happy just worrying about clearing out my debts and planning on saving money for, pretty much, the first time.

Thanks for the link on voting!


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## Bevdeforges

OK, one step at a time. But at the moment, you're in a pretty simple situation.



sid351 said:


> Just to complicate things, my girlfriend isn't a US citizen, so I presume I would just have to file separately (as really her money means nothing to the US, right?)


If and when you get married, you would have the option (should you choose to do so) of filing jointly with your wife, whether or not she is a US citizen. Some will advise you differently, but my take on it is to just file separately and leave her out of the picture for US tax purposes. 



> Thanks for clearing up the FBAR & Taxes. I thought they were linked, and reading up on it (and the link to the FBAR FAQ not working) wasn't helping.
> 
> Just to clarify, if I don't have more than $10,000 (as an aggregated total) in foreign financial accounts at any one time during the year I don't need to file an FBAR (although if it's likely to be $9000 upwards it probably wouldn't hurt to file one).


Basically, yes. What you are supposed to report for each account is the high balance for the year, so it's possible that if you add all the high balances together you might wind up with more than $10,000 even if you never had that much on any one single day. You can argue either way on that - and honestly I doubt they would come after you if you fell into that situation and didn't file.



> I presume this is credit only, so a mortgage (or credit card debt) wouldn't come into it but stocks and shares would (and I wouldn't be able to deduct my debts from the credits). E.g. $10,001 in savings & $200,000 in debts (a mortgage) still needs an FBAR.


The FBAR is only for bank and financial accounts with a cash value. You don't report mortgages or debt on the FBAR, and neither do you report the value of a house you might buy. 

Where things get complicated is that, once your overseas assets rise to a level of $200,000 or more, you may fall under the FATCA regulations. FATCA is a series of forms that you file as part of your income tax return (if you meet the requirements). However, the FATCA forms all refer to "certain" financial assets, which means "not all" - which ones they are referring to is not at all well defined. Until your net worth starts to approach the $200,000 threshold (that's for US citizens living abroad - the limit is lower for those resident in the US) I would not worry about this. It's likely to change over the next few years.



> Am I going to need to pay special attention to work "perks"? I'm starting a new job soon and they offer some medical insurance packages including a Death in Service thing where my chosen heir (I feel so regal!) would get 4 x my annual salary if I die in the line of work (which lets be honest will not happen - I work in IT). Would things like that need to be included in my rounded up estimate? (It's the "an insurance policy with a cash value" wording in the FBAR form that has me confused.) Also, they do a company pension scheme, I presume this will come under the aggregate for the FBAR, right?


The short answer to this is "yes" - retirement plans and tax-free or tax-deferred savings of all sorts tends to fall afoul of the US tax laws. Generally speaking, life insurance provided by your employer is not considered a financial asset. You only get a payout if you die while still working for your employer - and you can't usually take that sort of insurance with you when you change jobs. It doesn't have a cash value. (Cash value life insurance is the kind where you can cancel the life insurance and get paid back an amount based on what you've paid in so far.)

A company pension scheme where you get paid x% of your salary on retirement also has no cash value and so doesn't affect your US returns (at least not until you start collecting your pension). A tax-deferred pension or tax-free savings, however, is the sort of thing you need to declare both on your FBAR, and on your US income tax forms (at least the earnings each year on the plan). Although the US has several different tax-deferred savings plans, they don't recognize similar plans set up in "foreign" countries.



> Once the inheritance comes across and I deposit it (or you know, I sort my life out and start SAVING money) I'll have to file an FBAR, but the inheritance money itself won't be liable for US taxes, just the interest eventually earned, which will be taxed here by the UK anyway (unless it's in a Tax-Free ISA ...would that cause a more severe headache?) and will still probably fall under the Foreign Earned Income Exclusion (FEIE) amount. If I go over the FEIE, then I owe Uncle Sam some money.


Not quite. You're ok until you start talking about the FEIE. The FEIE applies only to EARNED income, which is IRS speak for your salary, or other work-related income. Interest on your savings (or the inheritance) is not excluded under the FEIE, however any taxes you pay to the UK on that interest can be credited against any taxes you may owe to the US. This is where the tax-free or tax-deferred plans get scre... er, I mean "disadvantaged."

However - if you declare the interest on any tax-free or tax-deferred savings as you go, you usually don't wind up paying Uncle Sam much (if any) tax, at least to the extent that you're getting less than a few thousand $$ a year in interest. And as long as the interest has been declared all along, when you start withdrawing money from your savings, it's considered "your" money and not declarable for US tax purposes. 



> I won't get in trouble for just quietly starting to file will I? Would I be better off to follow the streamlined thing (New Streamlined Filing Compliance Procedures for Non-Resident)? I've heard you don't want to rattle the IRS's cage


At your age, I would just start quietly filing. Plenty of folks in their late 20's are just getting to the point of having enough income in their own name to file, so you won't set off any alarms. The IRS budgets have been cut, along with everyone else's, so the auditors reserve their time and effort for actual tax evaders. You probably don't owe any taxes for the prior years, so just start from scratch with the current year and going forward. You're really not worth the time and effort it would take for them to audit you.



> Do I need to do anything special with regards to Social Security, as I haven't been paying anything (well, to the US Government - the UK however happily take my money)?


The fact that the UK is taking your money for social insurances means that you don't owe the US Social Security system anything. (You also won't get anything out of them later on - but that seems only fair, no?) There is a Social Security treaty between the US and UK that provides for the fact that you only have to belong to one system, that of your country of residence.
Cheers,
Bev


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## BBCWatcher

Just to expand on one point Bev made, although the employer-provided life insurance policy you describe is not FBAR reportable, if the policy would pay more than $50,000 to your beneficiary or estate upon your death then the insurance premiums your employer pays on your behalf are considered income, less the premium share attributable to the first $50,000 of death benefit.

There are two ways to handle that problem. One is to keep the full life insurance, report the imputed income to the IRS (hopefully your employer would give a clue how much in premiums they pay), and pay any tax on that imputed income. The premium would be small, and it's unlikely you'd owe tax anyway even on that small amount. Also, your girlfriend and future wife would be much better off receiving the death benefit if something bad happened since you don't have substantial savings yet. So that's what I'd recommend doing.

For the record, the other option is to put a letter on file with your employer (and/or the insurance company) which directs that the first US$50,000 should be paid to your designated beneficiary or estate, and anything above that amount should be paid to a charity with a U.S. office acceptable to the IRS -- what's called a 501(c)3 charity.

That's a very fine point within the U.S. tax code, but I think it's always nice to be precise. In the unlikely event an auditor ever comes knocking if you've been careful about such details that can only help.


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## Bevdeforges

I wouldn't lose too much sleep over the life insurance thing, certainly not until your salary income rises above the FEIE level. It is, as BBCWatcher says, a very fine point in the law and is unlikely to be looked at by the IRS until your income rises to the level of attracting any audit interest.
Cheers,
Bev


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## BBCWatcher

There's another option worth mentioning for completeness. Most U.S. citizens living and working overseas (more or less permanently) take the Foreign Earned Income Exclusion (FEIE). However, if you live in a comparatively high tax rate jurisdiction, it's worth running the tax calculation to see if not taking the FEIE makes sense and instead take only the Foreign Tax Credit (FTC). And the reason for that is that it's much easier to save for retirement in tax-favored ways, notably via a Roth IRA in the U.S. It also opens up some possible refundable tax credits.

I make no recommendations about MFS/MFJ, FEIE/no FEIE, etc. Circumstances vary. The best thing to do if at all possible is run the tax calculations to see what the impacts are before making any decisions. These days with computerized tax preparation software -- including free ones like TaxAct -- it's not too hard to run a couple simulations.

Yet another reason I mention this is if/when you start saving one must be careful to avoid IRS Passive Foreign Investment Corporation (PFIC) complications. Opinions vary, but I think PFIC rules are ugly, and I don't want to even come near triggering them. Saving in the U.S. is one way to avoid that problem and can make sense particularly if you pick up some U.S. tax benefits.

This is one of those "mixed blessings" about U.S. citizenship. U.S. citizens have the best access to the fantastic U.S. investment markets. They generally don't have to worry about withholding, in particular. On the other hand, U.S. citizens are handicapped with complex reporting requirements (or worse) when investing in such things as non-U.S. mutual funds. Charles Schwab permits U.K. residents to open U.S. accounts, as one example, and they have a physical branch in London.


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## sid351

Thanks for all the helps, tips and pointers.

I'm sure I'll have more questions going forward


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