AddyLaddy

Hi, I have just started working for a US company who are about to pay my first pay packet (in $ to a USA bank account). But they are asking whether to withhold my Federal taxes (i.e. W2 form).
I'll be emigrating with a H1-B on 24 Sept, so that will be 172 days from the beginning of the UK tax year.

Who should I be paying taxes to - UK or USA ?

I know there is a double taxation treaty, but having dealt with that before I'd prefer to pay the taxes once and to the correct country, rather than have to claim it back later.

ian-mstm

You should pay taxes based on where you are when you earn the money. Earn in the US, pay in the US.


Welcome to the US.

Ian

AddyLaddy

I am still in the UK ... but with a US employer and a $ bank account. So that will be 3 months working in the UK before I'm let into the States.

Thanks, we're looking forward to making a new start out there.

Rob_999

Before you move:
You're still resident in the UK so should pay UK tax on your worldwide income, including earnings from your US employer.

You're non resident in the US so I would think (but don't know for sure) that you should pay US tax on your US earnings only.

There is probably a double tax treaty such that any US tax paid on the earning can be deducted on your UK tax return.

Once you move it gets reversed. US tax on worldwide income and UK tax on UK earnings only.

Michael

Are you working for the company at their offices in the UK or are you working from home?

On an H1-B visa, you can't work in the US until October 1. Therefore if the company hired you to work before that but in the UK, you should be put on the companies UK payroll system where you and the employer both pay their share of taxes to the UK government.

I could see that there may be a problem if they hired you to temporarily work out of your home waiting for the October 1 date and do not have a payroll system for UK employees.

Governments don't care whether you are paid into US or British bank accounts but just want to be paid taxes owed by both the employee and employer when an employee is resident in that country.

If they hired you as a contractor while you are in the UK, then it would be up to you to pay the appropriate taxes for a self employed person with the UK government. In that case, your US employer should not report those wages on the end of year W2 form but should report the income paid to you to the UK government with whatever form is required (in the US that is the 1099 form). The company also should not withhold US federal/state income or FICA taxes during that time.

AddyLaddy

Oh dear, this is getting complicated! I had forgotten about the Employer's tax & NI contributions etc.
They do have a UK office and payroll system, so maybe I should just get signed up to that until 1 Oct.

With me being a H1-B is it legal for them to pay me a US salary before 1 Oct ?

Thanks for your help.

Michael

It is not illegal to pay you a US salary but the British government will want their money. As far as the US, the government may find it strange if income prior to October 1 was reported on the year end W-2.

Since you are a resident of the UK, the British government gets first dibs on your taxes and if the US requires you to pay US taxes on that income also, tax credits from the UK taxes paid would offset any US taxes owed.

I think you need to get on the UK payroll system until October 1. You could still be paid in US$ from the US office into a US bank account but the right government has to get the taxes that are owed as well as the correct paperwork. The problem is that the US payroll system for the company probably can't handle that correctly.

Normally if a UK company hired someone that was going to work in the US for 3 months prior to moving to the UK, they would just hire him as a contractor (self employed) for the 3 months. They would increase that persons salary to cover additional costs and then issue a 1099 at the end of the year. The salary increase would cover additional taxes and other costs that the contractor would need to pay that normally is paid by the employer. Everything is so much easier that way.

meauxna

You're not a W-2 Employee yet.

I'd say you are self-employed in the UK, and owe your tax to the UK. Your American company will likely want you to handle your own taxation there (it's a better deal for them as well).

AddyLaddy

I contacted the UK office but they were not very interested in paying me! So I'll just have to sort it out with HMRC next year I guess.
But I don't fancy paying employer's NI or whatever else an employer has to pay out of my own pocket ???

However, as we'll be gone before the 183 day period is up, won't I be non-resident for UK tax ?

Cheers
Addy

Rob_999

No - you're a resident until the day you leave. Here are the rules:

When are you non-resident for UK Income Tax?
You'll be treated as non-resident from the day after you leave the UK if you can show:

you left the UK to go abroad permanently or your absence and full-time work abroad lasts at least the whole tax year
your visits to the UK are less than 183 days in a tax year and average less than 91 days a tax year over a maximum of four consecutive years

Rob_999

Also suggest you read this http://www.hmrc.gov.uk/incometax/tax-leave-uk.htm