Help w/ Taxes, 401k, IRA, Tax Breaks.
DISCLAIMER: I am new to the US tax/credit/etc. system, when in doubt explain things to me like I have an IQ of 70.
SITUATION: First internship in US, I have no clue what I should do in terms of taxes, etc. I am a US citizen (dual UK). I'm going to be making $30k this summer ($25k base + $5k signing bonus).
I don't have a US bank account, credit, etc. I have proof of address but since I've lived in the UK from age 14, I've never needed any of these things.
I have the option for the following benefits/options, and am struggling to understand what I should do in terms of the following: 401k, IRAs, and tax deductions/benefits.
- My employer matches 100% up to 6% of my income. I assume that I should max this out given that it is from my pre-tax income, etc + saving for retirement. I would be an idiot not to right?
- My income tax will be taxes at the band for $130k (~$5k biweekly), and then I have to request a tax return as I'm only actually earning $30k. Is this correct?
- The first month when I get my bonus, my total income will be 15k, this will be taxed as if I was making $180k, which, again, increases my tax return from (2).
- I can claim an "Earned Income Tax Credit", since the criteria on the IRS website say (and I meet them all):
- Have worked and earned income under $57,414
- Have investment income below $10,000 in the tax year 2021
- Have a valid Social Security number by the due date of your 2021 return (including extensions)
- Be a U.S. citizen or a resident alien all year
- I assume that it would make sense to open a Roth IRA for money I want to invest (don't have any investments now), since I'm fine with holding until I'm 60. Yes?
- I should open a US bank account, get a credit card, and start building credit. This is a no brainer but I'm putting it for the sake of completeness :)
- Am I missing out on any other tax breaks? I don't think I can do the "home office" one, or any others (aside from education but my parents claim that one as I'm a dependent).
Thank you all!
EDIT: for (4), I realized that single filer w/zero children is $21k AGI. I assume that I can hit this by contributing to my 401k until my AGI is below $21k. I care more about not giving money to Uncle Sam than getting more money now.
good on you for wondering this. first, I am approaching this from the perspective that you are a US citizen and have no income in UK. if you have income in 2 countries, the answer is simple, get a CPA. your company may have connections/recommendations there.
Thank you for the reply, much appreciated and clears things up for me. Seems quite daunting and my situation is somewhat niche so not a whole lot of info online haha
Correct, I don't have any income in the UK. I'll take a look at HR Block!
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