Giantaxe

There is no 12.3% Medicare tax. As a self-employed person you pay 2.9% for Medicare and 12.4% for social security.

http://www.irs.gov/businesses/small/...=98846,00.html

And as has already been pointed out to you, this is balanced to at least some extent by the fact that you will have access to NHS services in retirement (the peak period for medical needs) despite not paying UK tax and NI for the length of time you've been in the US.

Edit: this link confirms that as a UK citizen you will continue to get US social security even when resident outside the US:

http://www.ssa.gov/pubs/10137.html

Steerpike

OK, since Elvira has unsubscribed, we can talk about her now .

Seriously though, folks, what I presented above is I believe an accurate presentation of the difference between filing as 'married filing jointly' vs. two people filing single. And the 'most' she's getting over-charged, by not being allowed to file as purely single, is about $800 assuming a joint income of $200,000. I know exactly what she is getting hung up about, and the only way to dispel that bad feeling is to go into a lot more detail.

Above, I showed how two people earning 100k each and filing singly pay almost the same as two people earning 200k and filing jointly. What Elvira is hung up on is that she sees her income as being 'piled on top of' her husbands, and thus getting charged at a higher marginal rate - absolutely true. But what she's missing is the fact that, by filing jointly, her husbands income is actually taxed at a much LOWER rate than if he were to file as single. SO - specificaly, using the above example, if Mr. E makes 100k, and files singly, he pays $19,965. But if Mr. E makes 100k, and files using the joint option, that same 100k is only being taxed in the amount of about $13k, and then Mrs. E's 100k gets added on top and rounds it out to about $40k. So YES, Mrs E's 100k is getting charged at a much higher rate, costing about $27k, compared to Mr E's $13k for the same 100k. BUT - Had Mr E and Mrs E both filed singly, they would have EACH been charged about $20k each.

To make it crystal clear - Mrs E is absolutely paying a lot more by filing jointly - $27k vs. $20k if she filed singly. BUT - Mr. E is paying a lot less by filing jointly - $13k, vs. $20k filing singly. And the absolute net difference is that as a couple they are about $800 off.

There really is no magic or mystery to this, but you do have to work through the numbers and it is tedious and boring. I can't believe I actually put in all the time to figure that out and document it, but I did get curious about how all this works myself!


I sympathize with Elvira on the FICA issue, that 12% (or whatever) is tough.

As for California tax, while the marginal rate is 9.3% at the top, the effective rate for someone making 100-200k is about 6%. I'm happy to pay 6% extra to live here, and ... I can almost GUARANTEE I could not make within 20% of my current salary if I were to leave the Bay Area! So I could go to tax-free Nevada and avoid the 6% state tax, but suffer a 20% cut in pay ... AND be stuck in Nevada!

Tracym

That's the point I was trying to make (but you were far more detailed).

Yeah, self-employed isn't the best deal. But there is something (look up FICA on wiki) where while the rate is higher for self-employed, they calculate it based upon a different amount (not 100% of income or something). You seem the be good at figuring these details out, I'll leave you to it (lazy here).

Giantaxe

The point becomes even more pronounced if you are itemizing deductions as typically the big deductions (mortgage interest, property taxes) are the joiunt responsibility of both people.

You get taxed on 92.35% of your self employment income. It's a complicated calculation but this is done so that the tax is equitable with that for an employee (employees don't get taxed on their employer's FICA contribution).

I actually disagree that self-employment isn't the best deal, except for the health insurance problem (a big problem imo). It's far easier to deduct or depreciate things as a business expense than it is for an employee. Plus, as I mentioned before, all but 2.9% of self employment tax is going towards one's future social security. Unless you believe the system will be bankrupt by the time you retire, you are getting something in return for your contributions (as typically you will for the 2.9% Medicare tax as well).

Tracym

Oh for sure, if you're self-employed and you have a lot of expenses you can write off (been there, done that)

And if you're married, hopefully the insurance issue is solved.

So maybe I'll recant there, might not be a bad deal after all.

Giantaxe

The converse being that if you are not married and not young, the health insurance issue is a huge disincentive to becoming self-employed. I know many people in this position who simply stay in a job they don't really like merely because they need the medical benefits.

Tracym

Oh absolutely, can't argue with you there.

Okachickima

Actually, if the poster insists on thinking of what she earns as being hers rather than part of the joint income of the couple, despite filing jointly, she could could think of the husband's income as being "piled on" her own rather than vice versa. Thus she would be paying a low rate of tax if any at all. It would increase the amount paid by the husband, though.

Tracym

Of course, the "fair" thing would be to split the deductions between the two of them.

Hmmm... then we can argue whether it's fair to split them in half... or by proportion of income...

Taxes are too complicated, lets just abolish 'em.

Giantaxe

In a community property state, the deductions for mortgage interest and property taxes would have to be split in half if they filed separately, regardless of how title to the property was actually held. Otoh, state taxes would be apportioned to whoever had actually had them withheld.

Tracym

Well I was more speaking about how to THINK about it fairly, rather than actually filing separately.

But for actual taxes - they'd split all deductions - like chidren?

Tootsie Frickensprinkles

I ended up looking at slightly differently. I have never filed US taxes myself and can only comment on the single income of the oh.

All I know is, all told, he was paying out almost exactly the same per month as deductibles on his salary in VA than I was in London, and his single guy, under 30 health insurance contribution is not a lot.

Bearing in mind that you need to earn considerably more numerical dollars in the US than you do pounds in the UK for the same standard of living one can argue had he been earning the same value salary he would have been paying less in the UK.

When you then add, personal property tax, property tax, fees and charges to do with services and utilities and the fact we didn't have a decent school in the district, and not really much else either. I think we were paying more for less. It looked cleaner, but thats a population density issue.

What we got out of it was a bigger appartment, but then it was price comparing South VA suburbia sprawl to West London suburbia. Hardly apples and apples. I do realise that other people come off better, but imo, we had the worst of both worlds where we were.

Giantaxe

Those are exemptions not deductions

Assuming both qualify under IRS rules to claim the exemption(s), they can choose who takes it.

Tracym

Waaaaah he's picking on me with official tax language.

I just know the gist of it - I let turbotax run the rest.

Steerpike

Definitely going off on a tangent here, but - I live with my girlfriend; we are not married; we each file as single (of course); we own the property jointly but hold title roughly 60/40% (this ownership % is written into the title document, we were careful to ensure that); we live in CA which is a community property state; I take 60% of the mortgage interest deduction and 60% of the property tax deduction, she takes 40%. We've been doing this for 14 years, and on at least 2 occasions had our taxes done by a professional accountant and the fact we took deductions in proportion to title instead of half/half was not a problem, and we specifically asked.

I'm not saying you are wrong but I'm not following that approach and have never had an issue.