Understanding Taxes, 401 etc
 

Afternoon all.....

I'm currently in talks with a UK based company about a job which would see me relocate to NYC for their new offices there.

Now whilst I love America, particularly NYC, and would like to think I'm familiar with culture over there etc, what I'm still trying to figure out is actual "living".

Now from my understanding, a 401k is similar to a pension here in the UK. I also believe you have to do your own taxes at the end of the year (rather than having PAYE like we do in the UK). Oh, and then there's health cover etc etc

What else do I need to consider? How much are taxes? What is a good 401k?

Any help, or links would be great (Google gives me links that aren't as useful as I'd like - either that or I'm using bad search terms).

Re: Understanding Taxes, 401 etc
 

If you are living in NYC (and not in the 'burbs) I believe you need to add NYC taxes to the equation. Otherwise, it is federal and state taxes. Social security and medicare deductions. Sometimes there is a deduction for workman's compensation (depends on the company as some will pick it up in full). Healthcare. Again, most companies will make you pay part of the premiums and a few will pay in full.

Personally, I don't consider a 401K a pension but that is just me. A 401K allows you to decide how much you want to set aside before taxes from your paycheck for investment in the company's 401K investment plan. Some companies match your contribution, some will give a small amount, but many don't contribute anything. My firm didn't contribute but our profit sharing at the end of each fiscal year was put into the plan by the company. These funds are not taxes until you withdraw them. There is a penalty you need to pay the federal government if you withdraw any funds prior to age 59-1/2. If you leave the company, you can either roll it over into another retirement plan, withdraw it all with a penalty or sometimes they allow you to remain in the investment scheme.

Re: Understanding Taxes, 401 etc
 

US tax system is like a bad attempt at PAYE - you are required to pay some taxes every time you are paid but the system only works on an approximation. If you haven't paid enough at the end of the year you will get a bill, and unless the underpayment is less than $1,000, you will also get a penalty for late payment of the taxes you should have paid throughout the year. Most people seem to want to err on the side of overpayment and get a refund. Personally, I look at that as giving a zero interest loan to the government, and aim for as close to zero under/over as I can get.

There are tax calculators out there, but when others have asked questions about salary and taxes, my usual response is that for around $80,000-$150,000 you are going to lose about 30% to taxes, or a bit less in a zero income tax state. If you're on $200k you're looking at about 35%. The reported results of the income tax calculators are consistent with this rule of thumb.

Re: Understanding Taxes, 401 etc
 

Thanks..... Also, what about "dectuables"? I've heard of these, but what is covered? And why can you claim these against taxes (I like to understand the reasoning behind things, along with what needs to be done - if that makes sense).

Re: Understanding Taxes, 401 etc
 

Assume you mean deductibles. Are you speaking of deductibles on your tax return? If so, I don't do a long form but use the standard deduction as I don't have enough deductibles in total to go over the standard deduction allowed by the federal and/or state of new York for a couple.

Off hand on your tax return, deductibles would be medical costs over x amount. This would include premiums paid, co-pays to doctors and hospitals, medicine, etc. You can also take off property real estate taxes (at least on the state). I don't own a home in a state where we pay real estate taxes ... lucky us. Charitable contributions, childcare costs, and I'm sure there are more. Have you d/l and read the 1040 tax instructions from the IRS? This will help you.

A good accountant would be able to steer you in the right direction to minimize your tax.

Best of luck to you.

Re: Understanding Taxes, 401 etc
 

Yes, I meant deductibles....

Thank you

I'll take a look at that form. I guess that that is what I was after. Some sort of document to read.

Fortunately I have a friend in Baltimore who is from the UK so she may be able to explain things - particularly comparing US to UK terminology. Also I do know someone in NY State, so I'll be asking him for advise. (A friend of my partner)

Re: Understanding Taxes, 401 etc
 

A "deductible" is the American word for an "excess" on insurance, most commonly talked about for health insurance, but also applies to car and home insurance. You pay the first $x deductible, before the insurance pays anything.

A "deduction, is something you take from your gross income to reach the amount on which taxied is calculated. There are many things in the US which can be deducted, including but not confined to: pension and 401k contributions, mortage interest, local/state property taxes certain medical expenses (not insurance premiums), etc.

Re: Understanding Taxes, 401 etc
 

It's worth noting that if you do decide that you want to come to the USA, and want to bring your partner with you, s/he will need to become your legally married spouse first, in order for her/him to qualify for a derivative visa.

Re: Understanding Taxes, 401 etc
 

That's not true (a B-2 "accompanying domestic partner" visa is a possibility), but if they're not married then the "partner" won't be able to work unless he/she qualifies independently for his/her own visa, e.g. through a transfer by his/her own employer.

Re: Understanding Taxes, 401 etc
 

From the instructions from Schedule C to 1040 return:

Examples of Medical and
Dental Payments You Can
Deduct
To the extent you weren't reimbursed,
you can deduct what you paid for:
Insurance premiums for medical
and dental care, including premiums for
qualified long-term care insurance contracts
as defined in Pub. 502.

Re: Understanding Taxes, 401 etc
 

I am sorry. I should have been more clear by adding, "... and if your partner wants to work without first qualifying for his/her own visa..."

Re: Understanding Taxes, 401 etc
 

Think of a 401k more like a shares ISA.

Regarding NYC "city taxes" I thought they applied if you lived or worked in the city.

Re: Understanding Taxes, 401 etc
 

My 401k is pretty much the same as my UK pension. Primarily consisting of mutual funds. My 403b also has mutual funds but less choice. Both are considered deferred income vehicles.

In some instances you can withdraw from your 401k at age 55

http://moneyover55.about.com/od/401k...-at-Age-55.htm

Re: Understanding Taxes, 401 etc
 

I agree, I don't know what CJ is talking about, because my experience of 401k's is that they are indistinguishable from a "personal pension" in the UK. - You contribute before-tax money deducted directly from the payroll, and you get to choose from a very limited range of investment funds.

Re: Understanding Taxes, 401 etc
 

I didn't realize there are 3 types of 401k. Looks like CJ was talking about Tiered Profit Sharing 401(k).
The traditional 401(k) is more common and is like a UK personal pension.

Forbes Welcome

Re: Understanding Taxes, 401 etc
 

In the UK employer benefits are all quite simlar between different companies. In the US there can be many differences in the type of pension, vacation, healthcare etc.

Re: Understanding Taxes, 401 etc
 

I'd argue A 401k is more comparable to a UK SIPP than a shares ISA. An ISA does not have any restriction on age for withdrawal, whereas SIPPs or 401ks both do.

It's also important to point out that while 401k contributions are tax-free, US income tax is potentially due on payments out of a 401k. The value of a 401k is usually from having a lower average tax rate in retirement than during working life. That said, the tax situation would be different for a non-US taxpayer with a 401k, assuming you return to the UK.

And Mrken, I see those "three types of 401k" as just being subtle variations in how the company match works. They are still overall pretty similar.

Re: Understanding Taxes, 401 etc
 

Thanks all. My partner would be staying in the UK, although we do have a wedding planned for Sept 2018.

At this stage I'm not sure if I'll be permanently relocated to the US, or if it's a case of travelling between the US and UK.

Re: Understanding Taxes, 401 etc
 

You can get a good idea on taxes by using this calculator: Yearly Federal Tax Calculator 2016/2017 | 2016 Tax Refund Calculator

Re: Understanding Taxes, 401 etc
 

Thanks.... Another question, can you pay your taxes monthly? I have always had the belief that you pay it annually.

Re: Understanding Taxes, 401 etc
 

You can pay your taxes (called withholding) with every pay check, whether that is weekly, monthly etc. You can adjust the amount of withholding by completing a form (W4) that your company can provide.

Each year you must file a tax return and you will either get a refund or pay more as the tax withheld is never exact.

Re: Understanding Taxes, 401 etc
 

Don't forget the likely need for state tax withholding also. The state will have their own form.

Re: Understanding Taxes, 401 etc
 

Did you read what I wrote in post #3, above? :unsure:
* * * * *

FIFY :) If you don't pay tax in the periods that you earn your income, there is a penalty for late payment, though not a large penalty. But you can't under-withhold taxes all year then pay a load of tax in December without the IRS noticing.

The basic figure is calculated for you, and as Durham lad said, you can adjust it using a W4.

Re: Understanding Taxes, 401 etc
 

Sorry, yes I did.... Think I'm trying to take too much in at once (I feel rushed lol).....

I've also downloaded that IRS form which I will have a good read through.

Re: Understanding Taxes, 401 etc
 

I could be wrong, since it's been a couple of years since I had a significant capital gains tax bill, but I'm not sure that's true. There is a penalty for delaying paying estimated taxes (i.e. direct to the IRS, outside the withholding system), but I believe that you can skew your withholding towards the end of the year without penalty. Remember that your W2 form only shows total withholding, not divided up by quarter.

Re: Understanding Taxes, 401 etc
 

I'm not sure this is information you actually need, but for completeness, there is a system for paying so-called "estimated taxes" every quarter (not every month). This is intended for covering taxes outside the withholding system, like capital gains tax, though you can alternatively change your withholding to cover it.

Re: Understanding Taxes, 401 etc
 

You may be right on that. I was assessed quarterly additional payments one year a few years ago, after a small tax bill the previous year, about $2.5k IIRC. I did not make the quarterly payments during the year, but although I had paid sufficient tax by the year end, and owed no additional tax, I was assesed a few dollars penalty, about $60 IIRC, which apparently resulted from not making the quarterly payments. :unsure:

Re: Understanding Taxes, 401 etc
 

So, give me a real life example if you wouldn't mind.

In the UK, I go to work, and then at the end of the month I get my wages into the bank, and a wage slip handed to me for reference.

Sorry for being a PITA.

Re: Understanding Taxes, 401 etc
 

A W4 is a form that you fill in. It tells them how much to deduct from your pay check (cheque) for taxes each pay period. You get a wage slip in the US, just the same, that shows how much was deducted for federal taxes, state taxes (if you live in a state with state income tax, and also deductions for health insurance premiums, tax-advantaged dependent care accounts and whatever else.

Re: Understanding Taxes, 401 etc
 

Same in the US, in my experience. The payslip is functionally identical to the ones issued in the UK: they itemize gross pay, pre-tax deductions, after-tax deductions, and then net pay.
My employer has a tax-payroll web site that asks basic questions - mostly about your family and calculates a withholding figure. You can then request additional withholding.

Re: Understanding Taxes, 401 etc
 

That's handy. I assume it's just automating the IRS W4 worksheet?

Re: Understanding Taxes, 401 etc
 

Ah, so they auto deduct some taxes then.... That's good

All I have to go on based on taxes in the films I've seen :lol: It's one thing travelling the states, another thinking about living there.

Re: Understanding Taxes, 401 etc
 

I guess. :unsure: .... And I can go in and change it at any time during the year. If my accountant says I'm marginal on my tax withholding for the year when he does a pre-year-end review in late October, I sometimes go in and bump up my withholding for the last few pay cycles of the year.

Re: Understanding Taxes, 401 etc
 

You just don't want to owe more than 10% of your taxes or more than $1000 at the end of the year or they make you pay estimated taxes every quarter. So it's a balance between paying too much and giving the Government a free loan or not paying enough and being penalized .

This article is about as close as I could find on the subject.
https://www.irs.gov/businesses/small...stimated-taxes

This only really catches you if you sell stock or have other untaxed income such as rental income.

Re: Understanding Taxes, 401 etc
 

The US puts a lot more responsibility for calculating and paying taxes on the taxpayer than the UK does. Your employer will give you an IRS W4 form when you start work and what you enter on it will help them to estimate the taxes they should withhold from your paycheck. At the end of the year you will fill out an IRS 1040 and figure out the exact amount you owe and then apply what you've had deducted through the year by your employer and either pay a bit more or get a refund...you get a W2 from from your employer that shows the exact amounts withheld for the year.

You will also have to do similar things for your state taxes. However, it's not so bad because tax software programs (which most people now use) do the Federal and State taxes at the same time.

Re: Understanding Taxes, 401 etc
 

Aha, thank you

Re: Understanding Taxes, 401 etc
 

Yes. This is all the explanation I needed. I don't know I feel stupid but I just was't getting it. My employers told me I need to fill out my "tax forms" when I arrived, but I don't know whether they get that we don't do that for income tax in the UK.

On the payroll website there is zero guidance about which forms I actually need to fill in, it just lists them all out. The people there haven't been helpful at all. I just got my first pay cheque and it looks like it's gross of any tax. Now I'm freaking out because I don't know whether this means I have to declare it to some authority as well as filling out the forms I needed to in the first place.

Grrr

Re: Understanding Taxes, 401 etc
 

Look for the W4 and complete that, then hand it back to your employer. I wouldn't worry too much if you have paid no tax for one or two pay cycles, but you might want to add an "additional withholding amount" on your W4 to ensure you have caught up by the year end (12/31).