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.


  1. 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?
  2. 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?
  3. 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).
  4. I can claim an "Earned Income Tax Credit", since the criteria on the IRS website say (and I meet them all):
    1. Have worked and  earned income under $57,414
    2. Have investment income below $10,000 in the tax year 2021
    3. Have a valid Social Security number by the due date of your 2021 return (including extensions)
    4. Be a U.S. citizen or a resident alien all year
  5. 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?
  6. 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 :)
  7. 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.

 
Most Helpful

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.

  1. yes do not turn down free money. particularly if you plan on staying in the US after graduation, good to start saving early. I personally recommend a roth-401k as it's what I do myself, but good arguments can be made both ways
  2. you don't need to request anything, just make sure they have a proper address on file, you will get a form called a W-2 that reports everything the IRS needs to know
  3. correct
  4. I'm not sure, but there are ample tax programs out there that help you find whatever credits you're entitled to. I personally use HR block and have been very pleased
  5. yes, I do this personally and think it's a good idea
  6. yes
  7. see answer to #4
 

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