If you are paid severance in addition to your income in the UK, you could be responsible for paying ongoing taxes on any severance payments back to the United States. US taxes on any form of severance payment is required, even if you're living in the UK.
A severance payment is a package that is often paid out with regular wages or as a lump sum in an effort to deliver benefits to employees. Severance payments can also be delivered in a lump sum when an employee leaves a company. This is designed to help with the transition into new employment. Severance pay calculations usually occur based off of the length of employment. If a person was dismissed from a high-paying position where they work for several years, it's possible that they could receive several months’ worth of severance in full wages and in a lump sum. This could represent a significant sum of money to pay taxes on especially if you are responsible for reporting this income back in the United States.
In UK law, residents can accept up to £30,000 in severance completely free of taxes. In the United States however any amount of severance is considered taxable income. This means that if you've been paying any type of severance and your US citizen, you will be responsible for cleaning the severance that was paid out to you. Whether this was done in a lump sum or in smaller payments to cover benefits, you will have to report severance as income in the United States even if you don't report as income in the UK.
If severance is going to be paid out separately from regular wages it's possible that you could be charged as much as 25% of that severance pay back in taxes. This could represent a substantial amount of money come tax time as a US citizen.
If you could use assistance with tax information regarding severance payments as a United States citizen, we can help you today. Our tax experts assist US citizens with minimizing tax severance payments and improving the process of paying taxes while they are living abroad. We can help you today when it comes to your taxes as a United States citizen. We want to let you know about all of the latest tax breaks that you may qualify for as well as how you can handle issues like severance payment as a United States citizen living abroad. Contact us for tax advice today and we can help you save money.
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