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-   -   Understanding Taxes, 401 etc (https://britishexpats.com/forum/usa-57/understanding-taxes-401-etc-878594/)

mrken30 Jun 8th 2016 6:32 pm

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.

Owen778 Jun 8th 2016 7:59 pm

Re: Understanding Taxes, 401 etc
 

Originally Posted by sir_eccles (Post 11968362)
Think of a 401k more like a shares ISA.

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.

RandomlySet Jun 9th 2016 7:37 am

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.

bewildering Jun 9th 2016 9:23 pm

Re: Understanding Taxes, 401 etc
 

Originally Posted by RandomlySet (Post 11968131)
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).


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

RandomlySet Jun 10th 2016 7:56 am

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.

durham_lad Jun 10th 2016 9:33 am

Re: Understanding Taxes, 401 etc
 

Originally Posted by RandomlySet (Post 11969684)
Thanks.... Another question, can you pay your taxes monthly? I have always had the belief that you pay it annually.

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.

MidAtlantic Jun 10th 2016 12:11 pm

Re: Understanding Taxes, 401 etc
 
Don't forget the likely need for state tax withholding also. The state will have their own form.

Pulaski Jun 10th 2016 12:21 pm

Re: Understanding Taxes, 401 etc
 

Originally Posted by RandomlySet (Post 11969684)
Thanks.... Another question, can you pay your taxes monthly? I have always had the belief that you pay it annually.

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

Originally Posted by Pulaski (Post 11968239)
US tax system is like a bad attempt at PAYE - you are required to pay some taxes every time you are paid .....

* * * * *


Originally Posted by durham_lad (Post 11969729)
You can are required pay your taxes (called withholding) with every pay check, whether that is weekly, monthly etc.

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.

RandomlySet Jun 10th 2016 12:29 pm

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.

Owen778 Jun 10th 2016 12:43 pm

Re: Understanding Taxes, 401 etc
 

Originally Posted by Pulaski (Post 11969808)
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.

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.

Owen778 Jun 10th 2016 12:46 pm

Re: Understanding Taxes, 401 etc
 

Originally Posted by RandomlySet (Post 11969684)
Thanks.... Another question, can you pay your taxes monthly? I have always had the belief that you pay it annually.

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.

Pulaski Jun 10th 2016 12:54 pm

Re: Understanding Taxes, 401 etc
 

Originally Posted by Owen778 (Post 11969823)
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.

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:

RandomlySet Jun 10th 2016 1:11 pm

Re: Understanding Taxes, 401 etc
 

Originally Posted by Pulaski (Post 11969808)
The basic figure is calculated for you, and as Durham lad said, you can adjust it using a W4.

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.

Owen778 Jun 10th 2016 2:19 pm

Re: Understanding Taxes, 401 etc
 

Originally Posted by RandomlySet (Post 11969842)
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.

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.

Pulaski Jun 10th 2016 2:20 pm

Re: Understanding Taxes, 401 etc
 

Originally Posted by RandomlySet (Post 11969842)
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. .....

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.

Originally Posted by Owen778 (Post 11969906)
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. .....

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.


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