Spacey_

Does anyone have any idea how to transfer FTCs over to the next year, does this happen automatically or do you need to do something to make sure your excess credits are transferred and saved across the years ?

I have worked my way through 2019 and my UK tax was higher than the US, so i was wondering if i had to do anything to carry over that difference between the two, the IRS website wasn't very clear on this or i may have missed something

I am not sure whether or not the IRS are referring to the foreign tax credit that covers my US tax as the 'foreign tax credit limit' or if they are referring to something else

durham_lad

Nor sure what you are thinking of. It’s just like a bank. On line 35 of the 1040 in the Refund section you simply enter the routing number of the Wise bank and your account number.

S Folinsky

As a general rule, US tax returns are voluntary reporting. The only documents attached to returns are W-2 earned income and perhaps a check for payment. (I’ve note in recent years that our CPA has provided a separate payment coupon, but I digress). As retirees, we receive a plethora of 1099 forms - these are NOT submitted with the annual return. That said, be prepared to provide supporting documentation IF, and ONLY if IRS requests it.

Consider the system of “trust” but be ready to “verify.” If your return strikes the IRS algorithms as being reasonably true, it will most likely not be challenged. If rather it generates a WTF further information may be requested if not a full blown audit.

S Folinsky

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As an aside, it may very well be that your conception and/or birth may have been an accident on your parents’ part, that has nothing to do with whether one is a citizen or not.

durham_lad

1099 forms that have withholdings should be attached, as I found out a couple of years ago. I usually e-file and no forms are needed to be sent, and why forms have to be attached on paper returns is strange because all the numbers are identical to an e-file and the IRS should be able to match up the withholdings on an e-file and physical return just as easily imo. However, the letter I got back some weeks later stated that I needed to send in all forms that had withholdings and I had omitted a 1099-R. (They were correct, 1 of my 1099-Rs did have taxes withheld which I’d entered correctly on the 1040 but had not attached the evidence to prove it)

Nypool1e

Durhamlad, may I ask? Do you file your own tax returns annually or do you use an accountant here in the UK familiar with UK/US procedures? Also, when do you file? Early in the new year when you receive documentation from the US, thanks.

durham_lad

The filing deadline for overseas residents is June 15 so I usually file in May, after the HMRC tax year closes in April so I actually know what I will be paying in HMRC taxes. The forms 1116 I file are marked as "accrued foreign taxes" because I don't actually file and pay my HMRC return until much later in the year. I do use a dual qualified tax accountant in London but since she isn't certified to file electronically to the IRS I spend ~$60 to buy TurboTax and duplicate her return to save the expense and hassle of having to print out and mail in a paper return. An e-file costs nothing plus I also do my son's US return using that purchased copy. His return is very simple compared to that of my wife and I. I also use that copy of TurboTax to do tax planning for the next year's taxes.

theOAP

It sounds as though you are using form 1116 FTC.

Starting for the 2021 tax year, you will be required to use 1116Schs A and B. This will give you the carry over officially. Follow the instructions for line 10 of the 1116. For 2018, 19, and 20, the carry over was automatic, although a detailed computation could be included.

Line 22 (for 2021) of the 1116 is the "limitation". It may be a different line for prior years since the forms change yearly. You can not claim a greater amount of FTCs for one year than what the "tax due" is from the 1040 for that year. In other words, you may not claim a rebate for excess taxes paid to the UK. The carry over credits last for 10 years, but you will probably find that barring any unusual financial event you will never be able to claim those excess credits from the previous years. Your UK tax will usually be greater than US tax due. But, it's nice to have them just in case.

Are you using the "cash basis" or "accrued" method for part II? If the cash basis, remember you may only claim UK tax paid during the US tax year (Jan to Dec). Hence, a P60 is of no value. The UK tax paid will be a combination of the first 3 months of the calendar year (Jan to Mar) plus the last 9 months of that calendar year (Apr to Dec).

For 1116, you must adhere strictly to the "baskets". Income from work is "general limitation". Income from savings (interest) is "passive". You must allocate UK tax paid accordingly to each basket, and a separate 1116 is required for each basket.

You mentioned in a previous post UK National Insurance contributions. Remember, those mean nothing to the US, and you can not claim those as a tax paid to the UK nor deduct them in any way. For both 1116 and 2555 your income is gross (unless excluded for 1116), unless you elect a Treaty stance for employers contribution to a personal (company) pension.

When filing using tax software, such as TurboTax, you may need to include form 4852. This is to enable the tax software to work since it requires figures from W2s and 1099s. If filing by paper (for non-US sourced income) no justification of the figures is required: the IRS will have to take your word for the amounts of income and tax paid. You can complete a 4852 if you wish, but it is not required (currently!!!). Keep all records of how you computed your figures (as mentioned by S Folinsky) in case of audit, which is unlikely in your case.

A Caution:
You are naturally responding given your current situation. Bear in mind what your situation will be in 20 or 30 years. Single? Married? Purchased home? Mortgage? Started a business? Won the lottery? Want to own stocks and shares? Want any type of investments? Have ISAs beyond a cash ISA? Want pension provisions? Still in the UK, or the US, or elsewhere? Once you enter the US tax system, barring a very low income or renunciation, you will be a US tax payer for the rest of your natural life. Every financial decision you make for the rest of your life must also include consideration of your US tax liability. You will not function financially as a normal UK citizen.

tht

To add to the below post I have UK tax credits that will expire in a year or 2, turbo tax caries it over year to year, the main cause of this is that UK tax’s are higher than US and that the UK tax can only be used against the Federal and not state and city, property etc tax’s… to be able to use them you effectively need active foreign income that is taxed at a lower rate than US federal tax. To add to that when you have used these you may also get hit with AMT (alternative minimum tax) where you pay so little they charge you an alternative “minimum” tax anyway, the credits for this also carry over for 10
years and don’t seem to help….

theOAP

And, FTCs can not be used against NIIT income tax.

theOAP

For information: FBAR

"In what many tax lawyers and others have long hoped it would do, the U.S. Supreme Court has at last agreed to consider a so-called "non-willful FBAR penalty" case, which is expected to result in clarification as to how the penalties in such non-willful FBAR matters should be determined.

At issue is whether the United States' notoriously persecutory penalty regime for those found to have "non-willfully" failed to file Foreign Bank Account Reports for one or more years with the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) should be based on the number of accounts they failed to file FBARs for, or the number of years (as represented by "forms", as in "FBAR forms") they neglected to file."

BREAKING: U.S. Supreme Court (at last) agrees to decide on penalty for non-willful FBAR filing failures (americanexpatfinance.com)

theOAP

For Information: FATCA and accidental Americans

"Dutch Tax Affairs and Tax Administration secretary Marnix van Rij said on Wednesday that he plans to ask – for a second time – that the country's data protection authority, known as the Autoriteit Persoonsgegevens, or AP, revisit the U.S. tax law known as FATCA, in view of significant data protection concerns that were first raised in 2020 by the European Court of Justice's striking down of the main mechanism that EU member states have traditionally relied on to protect the personal data of their citizens............

Other countries in Europe have also sought to crack down on their "accidentals" and other expat Americans who lack the necessary TINs for their banks to comply with FATCA, notably France, where the Paris-based Association des Américains Accidentels (AAA) has been campaigning on behalf of such French citizens since 2017. No one knows how many accidental Americans there are around the world, but within Europe, estimates are that there are probably more than 300,000, of which around 40,000 are thought to live in France.........

Until now, Spain hasn't figured prominently among the EU countries where expats have been struggling with FATCA issues, but according to the NLAA, one of the other interesting developments to emerge from yesterday's Tweed Kamer hearing was the news that Spanish lawmakers have expressed an interest in becoming involved."

Tweede Kamer hearing outcomes: Dutch data protection authority to be asked to revisit FATCA; Dutch banks to be asked not to close accounts (americanexpatfinance.com)

theOAP

For information: FATCA success questioned

"In its introduction, the TIGTA report notes that when FATCA was signed into law in March, 2010, the Congressional Joint Committee on Taxation had "estimated that revenue from FATCA would be US$8.7 billion from Fiscal Years (FY) 2010 to 2020," with the result that by the end of FY 2020, "FATCA should have already generated this US$8.7 billion in tax revenues.

"[But] as we subsequently point out, the IRS has not come close to building the compliance plan that was originally contemplated."

And, the report adds later, in spite of "nearly US$574 million of FATCA-related implementation and maintenance costs compared against the [Large Business & International] Division's campaign compliance results from the IRS's systemic approach to address FATCA non-compliance, as well as FATCA-related assessments from field examinations," the IRS to date has been "unable to quantify revenue generated from FATCA compliance activity, beyond the US$14 million in revenue from penalties unrelated to [its various] campaigns." "




U.S. TIGTA report finds 'actions needed' to fix FATCA compliance (americanexpatfinance.com)

Additional Actions Are Needed to Address Non-Filing and Non-Reporting Compliance Under the Foreign Account Tax Compliance Act (treasury.gov)

Does this mean foreign banks are under greater pressure to identify US persons?

S Folinsky

Implicit in your post are the issues of tax year and accounting methods. Almost all individuals default to calendar year cash basis accounting. However, in setting up one’s affairs, it is possible to use use accrual and/or a different fiscal year. See IRS Publication 538.

theOAP

For Information: IRS destroys 30 million information returns

"The IRS said Thursday that it destroyed approximately 30 million unprocessed information returns because its "antiquated technology" forced it to dispose of the paper documents and vowed to process all such information returns that it received in 2021 and 2022."

IRS blames old tech in destruction of information returns - Journal of Accountancy

Would these include returns on paper such as forms 3250? 8938?

No one knows.

For those who can only file by paper (such as many expats in the UK), an interesting development.