Looking for US Tax deductions help
 

I am having trouble understanding various tax and SS deductions from my pay.

My employer won't help me and instead has told me to seek advice from "my tax advisor", something I do not have as;

a. I have not had reason to consult one
b. It is unlikely I will be able to afford one

..plus I am irritated as the suggestion that I should have one, as if its normal that everyone has a tax advisor, accountant, etc.

Is there a web forum for USA tax issues for expats or any suggestions as to where I can go for help?

Thanks.

Re: Looking for US Tax deductions help
 

Are you a US expat living overseas? The US expats in the UK has a forum for tax issues affecting expats. http://talk.uk-yankee.com/

For UK expats living here, what exactly is your question? Some here might have some guidance, or you can goto a site like 1040.com

Re: Looking for US Tax deductions help
 

Sorry I wasn't clear enough,

I am a UK expat living & working in the US.

Re: Looking for US Tax deductions help
 

Publication 519 is the IRS guide to expat tax - that might be a starting point for you. http://www.irs.gov/publications/p519/index.html

There's been quite a bit of discussion around various tax issues here, so it might be worth doing a search, or posting specific questions. I think someone posted a KPMG document at one time which might be useful.

I've also heard mention of the forum on turbo tax being useful, but I've not looked at that myself.

Re: Looking for US Tax deductions help
 

It depends how complicated your taxes are. It maybe a good idea to use a tax advisor for the first year...that way you have something to guide you if you attempt Turbo Tax etc the following year. If you have recently moved to the US or if you have any income from the UK you would be best to use someone who has international taxation experience.

Re: Looking for US Tax deductions help
 

If I am reading this correctly, you are not asking about filing taxes but rather asking what the withholdings are that are listed on your pay stub.

If that is so, fire away. They are easy enough to explain.

Re: Looking for US Tax deductions help
 

It is pretty normal and it's not expensive. For my wife and I to do city, state and federal tax returns including itemization plus a few consultations per year about various tax related things it cost a couple of hundred. That was really for the tax returns, the consultations were free.

In your paycheck you will have federal tax, medicare and SS taken out plus likely state and possibly city for the city you work at. The federal will be up to you to tell them how much to take and you will either owe or get a refund depending on how you figure it. I've never met anyone who has manage to break completely even for all their taxes in a year. You may also have retirement and various insurances taken out which will be tax deductible.

Re: Looking for US Tax deductions help
 

Fire away, some of us might know the answer.

In general, most Americans do their taxes themselves, or with the help of a program like TurboTax or something like that. Of course many Americans started filing taxes in their teens (form 1040ez) which was only one page and pretty simple, so as they get older and get more income they migrate to more difficult forms and rules. So, basically, most Americans have a general idea what to expect and don't really seek professional help, until you get in a situation that is really quite complicated (like married, filing jointly, living separately in different countries or some other odd form).

Re: Looking for US Tax deductions help
 

Yeah, try asking your specific questions here. I'm pretty good with the IRS tax laws and how they apply to us expats.

Re: Looking for US Tax deductions help
 

Yes. Thank you.

Here goes;

1. My Federal tax is now quite small compared to my state tax and medicare deductions. Why is it so low?

For example, my last pay slip was as follows (I am using round numbers from hereon in);

Gross Income: $1345.00
Fed Tax: $30.00
SS Tax: $78.00
Medicare: $18.00
State tax: $61.00

When I first started working in this job (Feb 09), my Federal tax deduction was around $80.00 (The SS & medicare has stayed about the same).


2. The Federal tax deductions seem to fluctuate each pay slip when my pay stays the same normally.
Also, when I have more earnings on one pay slip (not commission, just more hours are recorded in a pay period) the Federal tax shoots up.

i.e.
Pay period 1 = earnings of $1345 - Fed tax = $30.00
Pay period 2 = earning of $2000 - Fed tax = $127.00

There appears to be some threshold, above which I get hammered.


3. I recently got a bonus and the Federal Tax was the biggest deduction. Why would this be given that Federal tax is not normally the largest deduction in my normal pay?

4. What is True up?

Re: Looking for US Tax deductions help
 

You are on the right track in your thoughts there is a 'threshold' you are crossing.

In each paycheck, the withholding is sometimes figured as 'if this person made this much all year, how much would they owe at the end'. They are multiplying times 26 if bi-weekly or 12 if monthly and trying to compute your income at the end of the year. In some places with annual salaries they are a little better at computing it out, but in work that is hourly based you can see this rough estimate method used.

In some pay periods, the computation is coming out that you are making very little, say (12 * 1,345) - your personal exemptions and deductions = not a lot of income leftover to tax, and that which is taxed is at a low rate, say 10%. In other months they are figuring you are making more per year and thus will owe a higher percentage in tax, like 15% * (it's a progressive tax system so you owe 15% on that income above a certain point, etc).

When you got the bonus they gave it to you in all one lump sum and it looked like, for that month, you were on par to make probably 4x your salary, so you were taxed accordingly (why many firms give bonuses over a few months).

Of course, in the end, if you overpaid you will get it back coming filing time (by April 15).

Here is a quick breakdown of the rates

http://www.moneychimp.com/features/tax_brackets.htm

Now, with all that said, you are seeing some rather wild variations in your tax withholdings. While your HR might not explain why you could go in and say 'my withholdings are messed up--you are doing it wrong' and then they might have to explain to you.

You could also go find a tax form for last year and walk through how it works (might be good practice) so you can see how you are faring thus far this year. Estimate out the rest of the year and get an idea how much tax you will owe and how much you have already paid. Might give you an idea about whether you will get a refund next year.

Re: Looking for US Tax deductions help
 

The bonus wasn't massive actually (about $300) but the Fed tax that was taken was over $80 :thumbdown:
It was paid at the same time as my regular salary, but on a different pay slip.

Thank you also for all the other info too.