US tax reform

[pjclarke]

There's no concept of "married filing jointly" in the UK. The married couples allowance is not the same thing. The UK personal allowance is not transferable.

Some of it can be.

https://www.gov.uk/government/public...civil-partners

For a couple with children, both earning a salary, the US benefit is small and may be negative.

[WordIsBond]

You need to take into account of medical insurance, even if your employer contributes, it's still significant.

Many employers pay in full, including the one I worked for briefly. It's a tax-free benefit, so very tax efficient for them to pay the whole lot.

[jamesbrown]

Some of it can be.

https://www.gov.uk/government/public...civil-partners

For a couple with children, both earning a salary, the US benefit is small and may be negative.

Like I said, the UK married couples allowance is not comparable (baffled as to why you'd link to that, given I mentioned it). Likewise, the whole point of married filing jointly is to favour families in the tax system, so your example is completely missing the point. Even for families with two incomes, it's invariably better to file jointly due to the interaction with tax brackets.

[WordIsBond]

?? At current rates a married couple in the UK get combined personal allowances equivalent to $29.5K 2 kids would net them $2.3K in Child benefit. Any remaining difference, if any, is likely to be swallowed up in the higher cost of living.

A married couple only benefits from that combined personal allowance if they both have income that high.

The US has a $1000/child tax credit which is refundable (paid out to the parents) if income is low enough that there is no tax due to offset it against. So, child benefit is $2.3K here (if your number is right, I'm assuming it is), and $2K there. So the UK is $300 ahead. (The US moves ahead with larger families, since all children get the same amount in the US.)

So let's talk about that $40K income. The US couple pays no tax.

The UK couple, if they both have income up to the personal allowance, will pay 20% tax on $10.5K. So, extra tax of $2.1K. But if mum stays home with the kids, who aren't yet school age, and only dad works, the UK couple will pay 20% tax on $25K ($5K). They'll get around $500 in child tax credit.

At $40K income: if both work, the US couple is $1300 ahead and if only dad works, they are $4200 ahead.

Let's just use the current tax brackets (since we don't know what they'll be under the Trump plan), and take them up to $60K, shall we? The US couple pays 10% of $18,650 and 15% of $1350. About $2050.

The UK couple (if they split the income), pays 20% of $30.5K, $6.1K. But there's a problem -- now, they make too much for the UK child tax credit. At least they keep their child benefit a little longer, though. Of course, if only Father works, it's a bigger problem, because at today's exchange rate, $60K is £46.8K, which puts you in the higher rate band, doesn't it? So unless the UK couple is stupid enough to live in Scotland, they'll pay about $9500.

At $60K income: if both work, the US couple is about $3.8K better off. If only Papa works, the US couple is about $7K better off.

If we go up to $80K (around £62K), and only Daddy brings home the bacon, the UK couple has lost their child benefit. (The US child tax credit begins to phase out at $110K.) You are STILL only paying 15% in the US (up until $75K ABOVE your exemptions, in our example $115K). Here, gloriously, we pay 40% once we break above about $58K. By now, the UK couple is more than $10K worse off. You could buy a pretty good private medical plan for that, if your employer didn't already provide one, but if you are earning $80K, your US employer has certainly provided one.

I could go on. The higher the income, the more drastic the difference, of course. But even Labour doesn't say that £62K is rich, and at £62K the UK tax system is highly punitive by comparison to the US.

[WordIsBond]

Some of it can be.

https://www.gov.uk/government/public...civil-partners

For a couple with children, both earning a salary, the US benefit is small and may be negative.

Take any joint salary level for the couple and any breakdown between them that you want and the US will be better.

My analysis didn't include the partial transferability of tax allowances here, but even if the incomes were split evenly it wouldn't change the fact that they US is better.

I apologise, in the above analysis I forgot that the couple with $40K income in the US would also be eligible for over $2000 Earned Income Credit. So I significantly understated the advantage of being in the US for that couple. They would not be eligible for that credit with income of $60K, however.

[d000hg]

No tax on foreign profits would be a wonderful idea, I wish the UK would consider something similar to encourage exporting.