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Posted by Alex L, 1 reply
Please help, I’ve been bashing my head against a wall for hours trying to work out the answer to what (I think) should be an extremely simple question:
I live in the UK, work in the UK and pay taxes here, but I’m a US citizen. My earnings are well below the maximum level for Foreign Earned Income Exclusion.
My bank account pays me a (very small) amount of interest on my savings. Even if I switched to a high interest account (which I’d like to), the total interest per year would barely be a few hundred dollars.
What I’m trying to work out is whether I have to pay tax on this (Interest counts as unearned income, so I know it’s not automatically exempt), and if so at what rate? Does the “standard deduction” mean I don’t have to pay unless it’s over $12000 dollars of interest? Is there some amount of interest you’re allowed to earn tax free (as there is in the UK). Can I just claim foreign tax credit? Are you allowed to claim foreign tax credit and FEIE at the same time or is it one or the other?
I don’t want to end up slapped with a massive fine because I owe the government $0.40 in tax on my tiny interest, but I just don’t understand what I have to do 🙁
Alex, as a US citizen you are taxed on your world-wide income. There is an earnings exclusion to avoid doubling taxing income to a certain level, but there is no similar exclusion for interest, dividends, etc. And if you have more than US10k in a foreign bank then you also need to file a form with FINCEN on line.