How can I account for UK-paid self-employment taxes & foreign housing deduction in TurboTax Home & Business 2020?

[embrewer]

I live in the UK and am trying to complete my joint taxes using TurboTax Home & Business 2020. My husband cannot exclude his income and has not paid UK taxes, but I can and have filed here. Apparently, I need to get a certificate from the UK government proving this. However, TurboTax doesn't seem to have a means of acknowledging that I am not required to pay US self-employment taxes (double taxation treaty) nor does it offer the foreign housing deduction, which is for self-employed people, as opposed to the foreign housing exclusion. 1. How can I find what I need in TurboTax?

2. Why don't they have this ability?

Thanks!

[pk]

@embrewer  can you tell me a little bit more about your situation -- (a) are you both US citizen or Green Card holder ; (b)  is this your first year in the UK   and if not how did you file  for 2019;  (c) why can your husband not exclude his foreign  income if you are filing a joint return; (d) any thing else  that clarifies the  issue(s).   Once I hear from you I will duplicate the scenario and see TurboTax is not behaving as  expected.

Please answer  with the info requested -- yes ?

pk

[embrewer]

Hi @pk ,

I'll answer as best as I can:

a) are you both US citizen- YES. I am a dual US/UK national.

(b) is this your first year in the UK and if not how did you file for 2019 - second year, but the first was not a full year (from September 2019), so I didn't claim the exclusion, only listed the address as our residence. However, the UK tax year is April 2019-April 2020, so I filed a self-assessment (UK tax form), which included the income earned while living in the UK during that period. I paid voluntary National Insurance (UK SSI) because I didn't earn enough to be required to pay.

(c) why can your husband not exclude his foreign income if you are filing a joint return - he was in the States for nearly 6 months in 2020 and did not earn any income in the UK, only in the US. He owes on that.

(d) any thing else that clarifies the issue(s) - not sure other than I know I need to attach a copy of some certificate from HMRC. Also, I read in IRS publication 54 that as a self-employed person, I should take the foreign housing deduction and not the foreign housing exclusion, though I don't understand the difference. TurboTax only allows the exclusion. It also, and most importantly, does not let me exempt myself from self-employment taxes based on the equivalent taxes I paid in the UK. That puts me in a terrible bind because I'm probably going to have to hire an accountant, if I can't.

Thanks!

[pk]

@embrewer , sorry I could not get back to you earlier--please excuse.

(a) from your answers , I think I  better understand your situation and therefore venture to say that  you should be able to  prepare the return by yourself;

(b) the problems that you are seeing ---- housing exclusion vs. housing deduction -- is essentially the same .  In case of housing exclusion the  assumption is that your  employer is  providing you help ( monetary )  in paying for  "equivalent" housing in a foreign location and therefore  is eligible for exclusion just like foreign earned  income.   For Self-Employed   you are both employer and employee ( kind of ) and so a commensurate amount  should be  eligible for exclusion  along with your foreign self-employment  earnings.  TurboTax  just may not be  making the distinction.

(c) the issue of  asserting  SECA  ( equivalent of FICA for the self-employment but with a bigger bite ) exemption based on  totalization agreement should work -- thought there is a screen to do that.  However, I may be wrong. 

Therefore , I seek a little more time -- perhaps  this time tomorrow  ( 9:00PM  PDT  -- UK -8  hrs ) -- to recreate the scenario  and see if and why TurboTax is misbehaving.   Please can you wait that long ?

Stay safe

pk 

[embrewer]

Thanks, @pk ! I have applied for the UK certificate, though I'm not sure I did it right. Only included income from their tax year (ended 4/2020) but requested it to include through 12/20.

I look forward to hearing what you find out about TurboTax's capabilities.

Thanks!

[pk · Accepted solution]

@embrewer , what I found is a lot of confusion and outright errors.  

At the IRS, their suggestion is outdated ( form change and incorrect) -- they suggest  deleting the entry on form 1040 ( since updated)  to zero and  writing in in   "Exempt -- see attached  statement " -- however  the new form  does not allow this  and more importantly  this will still leave the  adjustment ( 1/2 of  Self-Employment ) to the AGI still operational -- so it has to be done on form SE.

At TurboTax -- the help text for SE worksheet refers to wrong lines ( when in forms mode )  and  in step-by-step mode there is no way to access   part-II, line 7   which reads " LESS other SE exempt non-farm profit or (loss) ..... see help.  

So the way I solved this is  -- in step by step mode  ---   Business Income & Expenses ->  Schedule-C ( complete this  as needed) --> then  go down to  "Business Taxes" -- select update --- next screen  Business Taxes , select  Self-Employment Taxes  --> Yes ----> Make Adjustments  --- here enter a negative  income  equal to the excluded  income.   This  does achieve the result needed. 

The best and "correct" way to achieve the result is to  go into forms mode  --- select  "Schedule-SE work sheet".  Here go down to  part-II line 7  -- " LESS Other SE Exempt non-farm profit or (loss).... " select the entry space , right click on the + sign;  in the back-up  sheet enter  " US-UK Totalization agreement  and per IRC Section 3111(c) and Section 1401(c) " and  enter  the excluded  income as a positive number.

In any case you have to file return by mail  because you have to include the  "certification of coverage" each year with your return.

I hope this helps and of course , if you need more help, just ask 

stay safe ( from delta et al )

[embrewer]

Thank you so much, @pk. I don't know how I missed this reply. This was very helpful. Turns out I requested the wrong certificate from the wrong agency, so more time to procrastinate...

Stay safe!

Thank you, again.

[car377]

Your instruction to provide detail reads, "select the entry space, right click on the + sign; in the back-up sheet enter "US-UK Totalization agreement and per IRC Section 3111(c) and Section 1401(c)" and enter the excluded income as a positive number.  On my TurboTax Home and Business 2020 (Windows 10) right-clicking on the + sign doesn't take me to any "backup sheet".  It offers a grayed-out "Find Next Error" and a not-grayed-out "About SE Adj Wks", which just loads a help display for the worksheet.  How do I access the "backup sheet" to enter the reason for this entry?  I am able to modify the entry and it has the intended result (zeroes out SE), but I'll have to type up a note and attach it manually if there's no way to get the reason into the forms I file.

[pk]

@car377 , your note saying " find the next error" implies we are on the wrong form.   You should  be displaying the  form Schedule-SE  worksheet  and looking at the amount  of SE Tax.   However , I am unable to actually  open the form and guide you  because I am not with my computer with software loaded in.   So short of   asking you poke at the issue and  forwarding the problem to another volunteer , I cannot do much else .  I do apologize  because of my inability at a time when you really need help-- please forgive my shortcomings.  I will alert the  other volunteers to jump in and help.

[car377]

Thanks for your response.  Here's a reply to that, for any other helper that picks up this issue:

There is no form in TT2020 Home & Business named exactly "Schedule-SE Worksheet".   If I go to Forms, hit "Open Form", and type in Sch-SE, I get two hits:

Sch SE-T: Self-Employment Tax

Sch SE-S: Self Employment Tax

These both appear to be the same identical form, but my data entry is recorded on the Sch SE-T form and the other one has blank fields.  Neither offers a way to get to a worksheet.  If I use "Open Form" again and enter "Sched" instead of "Sch-SE", I see two entries of interest:

Sch SE-S: Self-Employment Tax

Schedule SE Adjustments Worksheet

The first of these is the same "Sch SE-S" form I found above, which is populated with my data, but offers no worksheet or backup sheet links.  The second one has all the content that allows me to follow your instructions that reference: "part-II line 7  -- " LESS Other SE Exempt non-farm profit or (loss).... ", i.e., it has a line 7 in part-II that says, "Less other SE exempt nonfarm profit or (loss)".  Entering my total income there has the effect of zeroing the SE tax field, as you indicate, but right-clicking the "+" next to that space has only the effect I mentioned previously and opens no backup sheet.  I believe this *is* the right form, because it shows exactly the fields you describe in the section you specify.  Perhaps this version of TT2020 (Home and Business) purchased on a DVD differs from the version you use?

[pk]

@car377   SE-T is for the taxpayer while SE-S is for the spouse --- only used one(s) will get transmitted.  Understand your issue .  Since my machine is not available to me I have flagged  your issue to  other volunteers to help me out here. 

If my memory serves me correctly -- go to forms mode; then from the list of forms  on the left pane, choose / click schedule-SE worksheet  -- this should allow you to do what I suggested first ( i.e. create a back up sheet ).

pk

[VolvoGirl]

The T and S mean taxpayer and spouse.  They each have their own Schedule SE.