Income Tax
If you are a U.S. citizen or resident alien living or traveling outside the United States, you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States. Your income, filing status, and age generally determine whether you must file a return. Generally, you must file a return if your gross income from worldwide sources is at least the amount shown for your filing status in the Filing Requirements table in Chapter 1 of Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad (available at www.irs.gov). The IRS web site has a wealth of information available for the overseas taxpayer. Follow the ‘Individuals’ and ‘International Taxpayers’ links, or search for IRS Publication 54.
U.S. Tax Information
Internal Revenue Service
P.O. Box 920
Bensalem, PA 19020
(215) 516-2000 (not toll-free)
Phone service available from 6:00 am to 11:00 pm (EST) M-F
www.irs.gov
The income that you earn from employment in Northern Ireland is liable to tax and is deducted from your wages by your employer on behalf of the British Government. Not all income is taxable, and you are only taxed on ‘taxable income’ above a certain level. Even then, there are other reliefs and allowances that can reduce your Income Tax bill, and in some cases mean you have no tax to pay. Taxable income includes:
-earnings from employment
-earnings from self-employment
-most pensions income (State, company and personal pensions)
-interest on most savings
-income from shares (dividends)
-rental income
-income paid to you from a trust
There are certain sorts of income that are non-taxable. These include certain benefits, special pensions and income from tax exempt accounts. These are ignored altogether when working out how much Income Tax you may need to pay. Everyone who is resident in the UK for tax purposes has a ‘personal allowance’, which is an amount of taxable income you are allowed to earn or receive each year tax-free. This tax year (2006-2007), the basic personal allowance – or tax-free amount – is £5,035. You may be entitled to a higher personal allowance if you are 65 or over. If you’re due to pay Income Tax, there are a number of deductible allowances and reliefs that can reduce your tax bill. These include, for example:
-the married couple’s allowance (the husband, wife or civil partner has to have been born before 6 April 1935)
-maintenance payment relief (either you or your former spouse or civil partner must have been born before 6 April 1935)
-tax relief on pension contributions
-donations to charity under ‘gift aid’ or ‘payroll giving’
Unlike the tax-free allowances, these aren’t amounts of income you can receive tax-free. Rather they are amounts that can reduce your tax bill. After your tax-free allowance (and any deductible allowances and reliefs) have been taken into account, the amount of tax you pay is calculated using different tax rates and a series of tax bands.
| Income Tax band | Income Tax rate on earned income | Income Tax rate on savings | Income Tax rate on dividends |
| Starting rate: | |||
| £1 to £2,150 | 10% | 10% | 10% |
| Basic rate: | |||
| £2,151 to £33,300 | 22% | 20% | 10% |
| Higher rate: | |||
| £33,301 and above | 40% | 40% | 32.50% |
The tax band applies to your income after tax allowances and any reliefs have been taken into account; you’re not taxed on all of your income. ‘Earned income’ includes income from employment or self-employment, most pension income and rental income. ‘Dividends’ means income from shares in UK companies. Savings and dividend income is added to your other taxable income and taxed last. This means you pay tax on these sorts of income based on your highest Income Tax band.
If you’re an employee your employer will deduct Income Tax from your wages throughout the year and send it to HMRC. If you receive a pension, your pension provider will deduct tax in the same way. This system of collecting Income Tax is known as Pay As You Earn (PAYE). HM Revenue & Customs (HMRC) gives you a ‘tax code’, which you’ll see on your pay stub. Your employer uses your tax code to work out how much Income Tax to take off your wages through the PAYE system. At the end of each tax year your employer will give you a form – your P60 – showing your total gross pay for the year and how much tax you’ve paid.
If you have income from a source in one country and are resident in another, you may be liable to pay tax in both countries under their tax laws. To avoid ‘double taxation’ in this situation, the United Kingdom has negotiated double taxation (‘DT’) treaties with more than 100 other countries.
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