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Contracting in US for UK employer

Contracting in US for UK employer

Old Sep 14th 2014, 11:52 am
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Default Contracting in US for UK employer

Hi guys,

My husband has been given his interview date now, so we will likely be flying to the US in about 6 weeks if all goes well. His company know he's moving, and have said they are considering keeping him on as a contractor.

The main issue we are trying to understand is the tax implications for a US resident working for a UK employer. We know he only needs to pay tax to one country (fairly certain this would be the US), but have been unable to find clarification as to whether he could opt out of tax in the UK or if he would have to pay it and then claim it back later.

We are just trying to weigh up the pros and cons of this, as we are only considering it as a short-term situation. We are under no financial pressure to take go ahead with this opportunity, so if it going to be too much effort then he'll just turn the offer down.

Thanks,
Kristi
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Old Sep 14th 2014, 1:19 pm
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Default Re: Contracting in US for UK employer

Originally Posted by lander91 View Post
Hi guys,

My husband has been given his interview date now, so we will likely be flying to the US in about 6 weeks if all goes well. His company know he's moving, and have said they are considering keeping him on as a contractor.

The main issue we are trying to understand is the tax implications for a US resident working for a UK employer. We know he only needs to pay tax to one country (fairly certain this would be the US), but have been unable to find clarification as to whether he could opt out of tax in the UK or if he would have to pay it and then claim it back later.

We are just trying to weigh up the pros and cons of this, as we are only considering it as a short-term situation. We are under no financial pressure to take go ahead with this opportunity, so if it going to be too much effort then he'll just turn the offer down.

Thanks,
Kristi

You realise that your husband cannot work while he is in the US...even as a contractor for a UK firm...until he has employment authorization. This will take several months.
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Old Sep 14th 2014, 1:51 pm
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Default Re: Contracting in US for UK employer

Sorry, I should clarify he is applying for an IR-1 visa, so he will be authorised to work on arrival and won't need an EAD.
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Old Sep 14th 2014, 2:02 pm
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Default Re: Contracting in US for UK employer

Originally Posted by lander91 View Post
Sorry, I should clarify he is applying for an IR-1 visa, so he will be authorised to work on arrival and won't need an EAD.
Thank you for clarifying. If he's living in the US he will pay US taxes. No doubt someone will be along soon to give you more details.
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Old Sep 14th 2014, 2:14 pm
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Default Re: Contracting in US for UK employer

Originally Posted by lander91 View Post
Hi guys,

My husband has been given his interview date now, so we will likely be flying to the US in about 6 weeks if all goes well. His company know he's moving, and have said they are considering keeping him on as a contractor.

The main issue we are trying to understand is the tax implications for a US resident working for a UK employer. We know he only needs to pay tax to one country (fairly certain this would be the US), but have been unable to find clarification as to whether he could opt out of tax in the UK or if he would have to pay it and then claim it back later.

We are just trying to weigh up the pros and cons of this, as we are only considering it as a short-term situation. We are under no financial pressure to take go ahead with this opportunity, so if it going to be too much effort then he'll just turn the offer down.

Thanks,
Kristi
The usual solution to this is for your husband to become a "Sole Proprietor" and bill the UK company for his time. If the stays on the UK payroll there will be great complications in both income and payroll tax.

Your husband will be responsible for paying US state and federal income tax and also payroll taxes and those must be accounted for in his hourly rate. Also you must include health insurance costs and I would look into the retirement savings options for a sole proprietor like the solo 401k. You husband might also look into making Class 2 voluntary National Insurance as a non-resident.
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Old Sep 14th 2014, 4:43 pm
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Default Re: Contracting in US for UK employer

I invoice my old company and they pay me without anything withheld. I'm a sole proprietor of a California LLC so the taxes get paid as a person rather than as a company. My accountant (dual US/UK) seemed okay with it, as did the UK company's parent company. Note that this is services only, not products which may be a little different.
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Old Sep 14th 2014, 4:44 pm
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Default Re: Contracting in US for UK employer

Originally Posted by nun View Post
Also you must include health insurance costs
Not even an option in CA at least: business must have at least two members, and that cannot include spouses.

Fortunately my wife gets covered at her place of employment.
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Old Sep 14th 2014, 5:11 pm
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Default Re: Contracting in US for UK employer

Originally Posted by GeoffM View Post
Not even an option in CA at least: business must have at least two members, and that cannot include spouses.

Fortunately my wife gets covered at her place of employment.
I meant that the cost of those need to be included in the hourly rate quoted which is going to be a multiple of the take home salary.
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Old Sep 14th 2014, 5:37 pm
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Default Re: Contracting in US for UK employer

Originally Posted by nun View Post
I meant that the cost of those need to be included in the hourly rate quoted which is going to be a multiple of the take home salary.
Ah ok.
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Old Sep 14th 2014, 7:56 pm
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Default Re: Contracting in US for UK employer

Thanks for the list of things to account for when calculating the necessary pay rate, Nun... I suppose we'll have to also add the payments on his student loan on top of the rest of it.

He will definitely be coming off the UK payroll so that won't be an issue. We'll have to figure out how complicated it would be to get set up as a sole proprietor in Colorado. This would be services only, as he's a systems engineer who would be doing remote support for the UK late shift.
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Old Sep 14th 2014, 8:53 pm
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Default Re: Contracting in US for UK employer

Originally Posted by lander91 View Post
Thanks for the list of things to account for when calculating the necessary pay rate, Nun... I suppose we'll have to also add the payments on his student loan on top of the rest of it.

He will definitely be coming off the UK payroll so that won't be an issue. We'll have to figure out how complicated it would be to get set up as a sole proprietor in Colorado. This would be services only, as he's a systems engineer who would be doing remote support for the UK late shift.
It's usually very simple to set yourself up as a sole proprietor. There's usually nothing to do at the state level if you simply work under your given name. Then it's just a matter of paying estimated taxes and filing your state and federal taxes as a sole proprietor. You can deduct many business expenses too.

You can charge whatever rate that your clients will pay, but when working that rate out I'd only include legitimate business costs like taxes, insurance, office ret etc.....student loans would not fall into that category IMHO
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Old Sep 14th 2014, 10:26 pm
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Default Re: Contracting in US for UK employer

Originally Posted by nun View Post
It's usually very simple to set yourself up as a sole proprietor. There's usually nothing to do at the state level if you simply work under your given name. Then it's just a matter of paying estimated taxes and filing your state and federal taxes as a sole proprietor. You can deduct many business expenses too.
I used mynewcompany.com and they were really good. On the rare occasion I had a question it was always answered by the same person. They had live chat during the day too. But yes, in CA at least, it's very easy to run a company, especially if it's just consultancy (by "just" I mean you don't need, for example, food hygiene regs to deal with). Check whether a local business license will be required, even if working from home. They're usually pretty cheap, in the tens of dollars per year.

Originally Posted by nun View Post
You can charge whatever rate that your clients will pay, but when working that rate out I'd only include legitimate business costs like taxes, insurance, office ret etc.....student loans would not fall into that category IMHO
Agreed.
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Old Sep 15th 2014, 1:44 am
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Default Re: Contracting in US for UK employer

When a company hires someone, they are responsible for "employer's share" of taxes, which in the UK are PAYE expense and in the US are FICA and unemployment insurance expenses.

That means for an average company to hire someone for say $50,000 a year they actually end up paying $56,000 out of their budget--$50k in salary and $6k in taxes and whatnot.

If you are working as a contractor, that employer's share of the taxes is paid by you, personally, under what is known as "self-employment tax". I believe the current rate is about 15%, which is 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

As you calculate your expenses, you need to get some extra cash to pay this, otherwise you'll be cutting yourself short on the salary.
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Old Sep 15th 2014, 2:18 am
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Default Re: Contracting in US for UK employer

Originally Posted by penguinsix View Post
When a company hires someone, they are responsible for "employer's share" of taxes, which in the UK are PAYE expense and in the US are FICA and unemployment insurance expenses.

That means for an average company to hire someone for say $50,000 a year they actually end up paying $56,000 out of their budget--$50k in salary and $6k in taxes and whatnot.

If you are working as a contractor, that employer's share of the taxes is paid by you, personally, under what is known as "self-employment tax". I believe the current rate is about 15%, which is 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

As you calculate your expenses, you need to get some extra cash to pay this, otherwise you'll be cutting yourself short on the salary.
That's right, the OP needs to calculate an overhead and administrative rate to apply to the direct labour costs to come up with the amount to bill their client. That total overhead rate might be 55%, 100%, 300%......depending on the costs other than labour associated with the work.
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Old Oct 14th 2014, 10:12 am
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Default Re: Contracting in US for UK employer

Today my husband was brought into a meeting with his manager and asked if he would consider staying on the UK payroll until the end of the year working remotely from the US. Apparently they do this for a lot of their brokers (international shipping company) as long as it's less than 3 months.

I have my concerns about this - while I'm sure they've run it by their lawyers where the brokers are concerned, I would have assumed that the brokers were on temporary visas or VWP, while my husband will be a permanent resident.

Does anyone know if this is by the books for a PR? We don't want to step into any grey areas!
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