You have to express the income you report on your U.S. tax return in U.S. dollars. If you receive all or part of your income in a foreign currency, you must convert the foreign currency into U.S. dollars.
For information about converting foreign currencies to U.S. dollars, refer to Foreign Currency and Currency Exchange Rates.
If your company is not paying your housing or food, enter $0.
General Information:
If you live in the UK, you will likely still need to file a US tax return. Our taxes are based on citizenship, not residency.
If you're a single-filer, once you earn in excess of $13,850 USD you have to file a tax return.
There is a tax treaty between the US and UK that offers benefits to Americans working in the U.K. This tax treaty covers everything from pensions to corporate taxes and the exchange of information between the two countries.
You generally do not need to file additional forms to benefit from this treaty. While you typically don’t need to file additional forms to claim most of the perks from the U.S./U.K. tax treaty, In some cases you may have to file a Form 8833.
Click here for information on Form 8833.
The tax treaty allows U.S. citizens and residents to claim a foreign tax credit for the income tax they pay to the UK against their U.S. tax.
To avoid double taxation on Americans living abroad, the IRS gives them a choice:
- Deduct their foreign taxes on Schedule A, like other common deductions.
- Use Form 1116 to claim the Foreign Tax Credit (FTC) and subtract the taxes they paid to another country from whatever they owe the IRS.
- Use Form 2555 to claim the Foreign Earned-Income Exclusion (FEIE), which allows those who qualify to exclude some or all of their foreign-earned income from their U.S. taxes.
In most cases, choosing the FTC will reduce your U.S. tax liability the most.
To enter Form 1116 for the Foreign Tax Credit:
- Open (continue) your return in TurboTax
- Enter all your foreign income in Wages & Income if you haven't already
- Select Search, enter foreign tax credit and select Jump to foreign tax credit
- Or go to Deductions & Credits, and select Start next to Foreign Tax Credit under Estimates and Other Taxes Paid
- When you reach the screen Do You Want the Deduction or the Credit? select the option you prefer for your situation
- If you select Take a Credit:
- Select Continue on the next screen, then select No to fill out Form 1116
- When you reach the screen Country Summary, select Add a Country
- Answer the questions about your foreign income, taxes, and expenses on the following screens
- When finished, you'll be taken back to the Country Summary screen. If you have income from other countries to enter, select Add a Country. Otherwise, select Done
- Answer the questions on the following screens until you reach your Foreign Tax Credit Summary. If you’re finished with this section, select Done
- If you select Itemized Deduction:
- Enter your foreign taxes paid on the next screen. These should show up in the Deductions & Credits section of your tax return, under Other Deductible Expenses
In most cases, taking the credit works out better than the deduction.
TurboTax will help you decide which one's best for you when you go through this section of the program.
If you choose to take the credit, TurboTax will attach Form 1116, Foreign Tax Credit.
Click here for information on claiming the foreign tax credit.
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