Go Back  British Expats > Living & Moving Abroad > USA
Reload this Page >

Are my NI contributions tax deductible in the USA

Are my NI contributions tax deductible in the USA

Old Sep 17th 2014, 6:53 pm
  #1  
Just Joined
Thread Starter
 
Joined: Jan 2014
Posts: 4
Outlander is an unknown quantity at this point
Default Are my NI contributions tax deductible in the USA

I have been in the USA for a couple of months now but think I should continue to pay NI incase we retire or move back to the UK (only in our twenties right now).

Are my NI contributions tax deductible against federal and state (CT) income taxes?
Outlander is offline  
Old Sep 17th 2014, 7:11 pm
  #2  
 
thinbrit's Avatar
 
Joined: May 2008
Location: DFW
Posts: 984
thinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

Originally Posted by Outlander View Post
I have been in the USA for a couple of months now but think I should continue to pay NI incase we retire or move back to the UK (only in our twenties right now).

Are my NI contributions tax deductible against federal and state (CT) income taxes?
Short answer, No. The IRS does not consider NI contributions as taxes, so you can't put them in your Schedule A (besides, 'social security' taxes are specifically NOT deductible.) I suppose if your insurance costs were greater than 7.5% of your adjusted gross income you might be able to deduct a portion of the NI contribution that is related to health insurance.

My voluntary contributions this year were around £140. Even if all the stars aligned, my health insurance costs exceed 7.5% of my AGI, and I calculated the portion of my NI contributions that accounted for health (presuming they are even eligible in the IRS opinion) it seems like a lot of work for very little, if any at all, financial gain.
thinbrit is offline  
Old Sep 17th 2014, 9:03 pm
  #3  
Forum Regular
 
Joined: Apr 2014
Posts: 180
unique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

I thought you did not need to do voluntary NI contributions in the US as there is a tax treaty? Or did I read that wrong?

This link
http://www.hmrc.gov.uk/nic/work/ss-agree.htm#3a

Last edited by unique_boy; Sep 17th 2014 at 9:12 pm.
unique_boy is offline  
Old Sep 17th 2014, 10:17 pm
  #4  
Bob
BE Site Lead
 
Bob's Avatar
 
Joined: Aug 2004
Location: MA, USA
Posts: 91,725
Bob has a reputation beyond reputeBob has a reputation beyond reputeBob has a reputation beyond reputeBob has a reputation beyond reputeBob has a reputation beyond reputeBob has a reputation beyond reputeBob has a reputation beyond reputeBob has a reputation beyond reputeBob has a reputation beyond reputeBob has a reputation beyond reputeBob has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

Originally Posted by unique_boy View Post
I thought you did not need to do voluntary NI contributions in the US as there is a tax treaty? Or did I read that wrong?

This link
HM Revenue & Customs: Working in Social Security Agreement Countries
You don't, hence it being voluntary.

It's cheap as chips though and depending on your age, might be worth doing so you can end up with two pensions rather than just the one.

If you're in your early 20's, it might not be as worthwhile doing though compared to someone in their 30's+.
Bob is offline  
Old Sep 17th 2014, 11:06 pm
  #5  
Forum Regular
 
Joined: Apr 2014
Posts: 180
unique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond reputeunique_boy has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

Originally Posted by Bob View Post
You don't, hence it being voluntary.

It's cheap as chips though and depending on your age, might be worth doing so you can end up with two pensions rather than just the one.

If you're in your early 20's, it might not be as worthwhile doing though compared to someone in their 30's+.
Yes mid to late 20's (ohhh sh*t when did that happen)....I think I'll skip it as when I move back (if) I'm more than likely to be living in Dublin.
unique_boy is offline  
Old Sep 17th 2014, 11:13 pm
  #6  
nun
BE Forum Addict
 
nun's Avatar
 
Joined: Aug 2004
Posts: 4,722
nun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

You can't deduct voluntary NI contributions, but any UK state pension you get because of voluntary contributions will not be counted when calculating the Windfall Elimination Provision. Any portion of the UK state pension due to UK earned income is counted when calculating WEP.

Another nice US tax advantage is because you are paying for the UK state pension from already taxed money a portion of your UK state pension will be US tax free. You just have to estimate your lifetime contributions, know the level of the pension and run through the IRS annuity calculator to see how much of the UK pension is US taxable. If you have been making Class 2 NICs you don't get much of a tax break because the contributions are small when compared to the pension.
nun is offline  
Old Sep 17th 2014, 11:19 pm
  #7  
nun
BE Forum Addict
 
nun's Avatar
 
Joined: Aug 2004
Posts: 4,722
nun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond reputenun has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

Originally Posted by Bob View Post
You don't, hence it being voluntary.

It's cheap as chips though and depending on your age, might be worth doing so you can end up with two pensions rather than just the one.

If you're in your early 20's, it might not be as worthwhile doing though compared to someone in their 30's+.
Class 2 NICs are 140GBP per year right now so it's almost stupid not to pay them. If you are young and think you'll only be out of the UK for a few years so that you will be able to get 35 years of contributions back in the UK it's probably not worth making them......but if you intend to be abroad for longer than 5 years I'd probably pay them.

I came to the US when I was 25 and I had 3 years of free NICs from the time I was 16 to 18 years old. I started paying Class 2 voluntary NICs back in 1987 so in total I have 30 years. It was a very good move.
nun is offline  
Old Sep 17th 2014, 11:24 pm
  #8  
Ping-ponger
 
dunroving's Avatar
 
Joined: Jul 2002
Location: Dreich Alba
Posts: 11,964
dunroving has a reputation beyond reputedunroving has a reputation beyond reputedunroving has a reputation beyond reputedunroving has a reputation beyond reputedunroving has a reputation beyond reputedunroving has a reputation beyond reputedunroving has a reputation beyond reputedunroving has a reputation beyond reputedunroving has a reputation beyond reputedunroving has a reputation beyond reputedunroving has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

Originally Posted by nun View Post
Class 2 NICs are 140GBP per year right now so it's almost stupid not to pay them. If you are young and think you'll only be out of the UK for a few years so that you will be able to get 35 years of contributions back in the UK it's probably not worth making them......but if you intend to be abroad for longer than 5 years I'd probably pay them.

I came to the US when I was 25 and I had 3 years of free NICs from the time I was 16 to 18 years old. I started paying Class 2 voluntary NICs back in 1987 so in total I have 30 years. It was a very good move.
+1 with knobs on.
dunroving is offline  
Old Sep 18th 2014, 8:18 pm
  #9  
BE Forum Addict
 
Joined: Apr 2011
Location: Ohio
Posts: 1,805
kodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

Originally Posted by nun View Post
Another nice US tax advantage is because you are paying for the UK state pension from already taxed money a portion of your UK state pension will be US tax free. You just have to estimate your lifetime contributions, know the level of the pension and run through the IRS annuity calculator to see how much of the UK pension is US taxable. If you have been making Class 2 NICs you don't get much of a tax break because the contributions are small when compared to the pension.
Thank you for yet another excellent tax pointer, Nun! I'm going to be paying Class 3 NICs, so this is especially useful for me. I've just found the relevant IRS pages, which mention about using either Simplified or General rules for calculating basis. Would this come under General do you think, since's it's a non-qualified plan?
kodokan is offline  
Old Sep 18th 2014, 8:47 pm
  #10  
Banned
 
Joined: Apr 2013
Posts: 5,154
hungryhorace has a reputation beyond reputehungryhorace has a reputation beyond reputehungryhorace has a reputation beyond reputehungryhorace has a reputation beyond reputehungryhorace has a reputation beyond reputehungryhorace has a reputation beyond reputehungryhorace has a reputation beyond reputehungryhorace has a reputation beyond reputehungryhorace has a reputation beyond reputehungryhorace has a reputation beyond reputehungryhorace has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

Wonder if the final bit of my English student loan I paid off this year (forgot about $1k I owed, ahem) is tax deductible? I know US student loan payments are, but not sure about English ones.
hungryhorace is offline  
Old Sep 19th 2014, 4:19 pm
  #11  
 
thinbrit's Avatar
 
Joined: May 2008
Location: DFW
Posts: 984
thinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond reputethinbrit has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

Originally Posted by hungryhorace View Post
Wonder if the final bit of my English student loan I paid off this year (forgot about $1k I owed, ahem) is tax deductible? I know US student loan payments are, but not sure about English ones.
Unless you earn less than $75,000 ($155,000 if filing a joint return) it isn't, and even then, only the interest is deductible, not the payment towards the principal.
thinbrit is offline  
Old Sep 20th 2014, 10:52 pm
  #12  
Grumpy Know-it-all
 
Steve_'s Avatar
 
Joined: Jul 2010
Location: Calgary, Alberta
Posts: 8,928
Steve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

Originally Posted by kodokan View Post
I'm going to be paying Class 3 NICs, so this is especially useful for me.
If you're employed you only have to pay Class 2, which are much less. If you're paying Class 3 the calculation as to whether it's worth it gets more tricky.
Steve_ is offline  
Old Sep 20th 2014, 11:32 pm
  #13  
BE Forum Addict
 
Joined: Apr 2011
Location: Ohio
Posts: 1,805
kodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

Originally Posted by Steve_ View Post
If you're employed you only have to pay Class 2, which are much less. If you're paying Class 3 the calculation as to whether it's worth it gets more tricky.
Nope, not employed in either the UK before leaving, or here, so I'll be Class 3.

I've run the calcs on the payback, comparing paying the Class 3 sub or taking that same money and investing it elsewhere until retirement age - in order to 'win', I'd need to live 10.6 years from withdrawal, so 77.5 in my case. I've grandparents who lived into their 90s and have absolutely no current health issues in my 40s, so seems worth a punt.

Anyhow, it's a question of regret risk. If I live, I'd certainly regret not paying. If I die... well, then I won't care! I view it as a way of taking longevity risk and the worst case scenario - pauperism in old age and outliving my money - off the table, at a relatively low cost.
kodokan is offline  
Old Sep 21st 2014, 12:07 am
  #14  
JAJ
Retired
 
JAJ's Avatar
 
Joined: Apr 2004
Posts: 34,649
JAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

Originally Posted by kodokan View Post
Nope, not employed in either the UK before leaving, or here, so I'll be Class 3.

I've run the calcs on the payback, comparing paying the Class 3 sub or taking that same money and investing it elsewhere until retirement age - in order to 'win', I'd need to live 10.6 years from withdrawal, so 77.5 in my case. I've grandparents who lived into their 90s and have absolutely no current health issues in my 40s, so seems worth a punt.

Anyhow, it's a question of regret risk. If I live, I'd certainly regret not paying. If I die... well, then I won't care! I view it as a way of taking longevity risk and the worst case scenario - pauperism in old age and outliving my money - off the table, at a relatively low cost.

Is there any chance that payment of voluntary NI contributions would be considered an indication of wishing to retain a U.K. domicile? (normally, it is desirable to establish a non-U.K. domicile in order to avoid Inheritance Tax on non-U.K. assets).
JAJ is offline  
Old Sep 21st 2014, 1:09 am
  #15  
BE Forum Addict
 
Joined: Apr 2011
Location: Ohio
Posts: 1,805
kodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond reputekodokan has a reputation beyond repute
Default Re: Are my NI contributions tax deductible in the USA

Originally Posted by JAJ View Post
Is there any chance that payment of voluntary NI contributions would be considered an indication of wishing to retain a U.K. domicile? (normally, it is desirable to establish a non-U.K. domicile in order to avoid Inheritance Tax on non-U.K. assets).
Interesting question... We don't have any other UK assets other than a minimal bank account for when we holiday there, and some very ancient pensions, no house or anything. All our assets are US-based: we own a house here, have retirement accounts and other investments, green cards (evidence of considering ourselves permanent residents), etc etc. The zombie UK pensions will be cashed out once we hit 55, and the money onshored here.

And it's not like a UK state pension is attached to any residency requirement, like having to return to the UK in the future in order to claim the pension, or at least pretend that you are. Having the right to pay into it and get a pension is a consequence of British citizenship (with a few provisos about having lived there and paid in X number of years in the past, etc).

So the circumstances of my British birth and earlier life there give me the right to pay for and claim a pension. The same British birth and early life there also gives me the right to pay for and claim a passport, but I don't hear anyone arguing that possession of a UK passport = British domicile.

What does anyone else think?

Last edited by kodokan; Sep 21st 2014 at 1:42 am.
kodokan is offline  

Contact Us - Archive - Advertising - Cookie Policy - Privacy Statement - Terms of Service - Do Not Sell My Personal Information

Copyright © 2018 MH Sub I, LLC dba Internet Brands. All rights reserved. Use of this site indicates your consent to the Terms of Use.