Expat Forum For People Moving Overseas And Living Abroad banner
1 - 2 of 2 Posts

·
Registered
Joined
·
11 Posts
Discussion Starter · #1 ·
How would you handle UK National Insurance Contributions for U.S. tax purposes?

I am a bonafide resident of the UK making 86k GBP. I understand quite well how the foreign income exclusion works along with the foreign housing deduction. However, the NIC is a quandary to me. Do I have to report to the IRS my enitre gross income as Foreign Earned Income (FEI) (including the NIC amounts that have been directly debitted from my paychecks)?

Here's the example:
Gross income: 86,000 GBP/yr
National Insurance Contribution: 5100 GBP/yr

Is my FEI for U.S. tax purposes 86000 GBP or can I report only 80,900 GBP as FEI to reflect the NIC deduction? Seems only fair that I should be able to exclude NICs from FEI since Social Security is taken before tax on US earned income.

If I have to report the entire 86000 GBP as FEI, can I deduct the NIC any other way? I know I can take a tax credit for INCOME taxes paid, but NICs are not income taxes. I assume there is a different way to handle NICs. Schedule A?

Thanks in advance for your comments. By the time I am done filing this year, I may know more about FEI than most accountants!
 

·
Administrator
Joined
·
51,955 Posts
I've already answered this over in the Britain forum (and actually kind of considered moving it over here). It's a relevant question for more than just the UK, however.

http://www.expatforum.com/expats/br...urance-contributions-nics-us-tax-returns.html

Just in summary, however, the US doesn't allow you to deduct national social insurance (or "social security") payments from your income. It would be an "aggressive tax position" but you could try deducting just the health care portion of your social insurances on Schedule A as an itemized deduction. The problem with that is that health insurance (and other health care related deductions) are limited to amounts over 7.5% of your gross income.

And, just one further caution - if you take itemized deductions and use the FEIE (the exclusion from form 2555), you have to apportion your itemized deductions between the income you have excluded and whatever is left.
Cheers,
Bev
 
1 - 2 of 2 Posts
Top