nun

The critical thing is where you are resident and where the work is done. The fact that you are employed by a UK company and the money is paid into a UK account do not determine where tax is paid. People seem to be ignoring payroll taxes in all this. What has been done about those? Working in the US there should be FICA to pay unless the reciprocal SS agreement is being used so that NI can still be paid.

tht

right, but you can be resident in more than one place. you have to look at the rules in each jurisdiction separately, and it also depends on more than just days spent in a place.

Leigh_A

In regards to my residency, according to HRMC's online tool, I should be classed as non-resident for 2014/15 - I was in the UK for only 9 days during the tax year, which seems to grant automatic non-residency status. It appears that they would only start looking at other ties had I spent more than 16 days in the UK. Using the tool, as soon as I tell them that I only spent 9 days physically in the UK, the questions stop and I'm told that I am a non-resident.

I did send a P85 to HMRC last year, along with an accompanying letter explaining my work situation. They wrote back stating that I will need to complete a self-assessment form in April 2015.

tht

https://www.gov.uk/tax-uk-income-live-abroad

Rimbaud

Hello all - I've read through this thread and a few others, and I'm still not sure I can answer my own questions, so I hope you don't mind me asking. Thanks for all the previous answers on questions like this.

I'm a Brit, married an American, lived in the UK for many years, we moved here to New York last year. She was resident from, and employed by a US company from 1st Jan 2014, so her case is nice and simple (they transferred her from UK office). I run events, my event was in October, so I spent much of the year back and forth between New York and London (several weeks were spent in the UK, including a two month stretch). During a trip over to the States in May, I acquired my Green Card (that application's fun, isn't it?). So for visa purposes I am a full time US resident since May 2014, and have spent the majority of my time in the US since then. My event in October over, I moved over to the US permanently on 1st November with no plans to be outside of the US for longer than a business trip or holiday.

I remain employed by the same UK firm as a US agent. Up until now they have just paid my salary in the UK, withholding UK tax. I have been saving 10% to cover NY state and city taxes.

Obviously this can't continue, so we were going to move to a contractor relationship, where they paid me a retainer and commission directly, and I paid US taxes as self employed. BUT... there is an extraordinary rate of self employed tax here in the US, plus federal plus state and city, which equates to 51% or so... and I'd be better off paying full taxes in the UK and taking the 10% hit on NY state and city as well - as ludicrous as that seems.

What are my alternatives? I have no desire to avoid taxes, just to pay the right ones, and not overpay in two jurisdictions. I have never filed taxes before in either country (my wife has of course filed US taxes religiously throughout our time in the UK). We'll file jointly. For 2014, we think we have it worked out with an accountancy firm and are ready to file - we'll use FTC for my income last year. I am looking for ways to continue my relationship with the UK employer without the double tax hit. I am intending to be a full time US resident for the forseeable (although will make trips to UK of course, business and non-business).

Thanks in advance.

nun

Yes residency and where the work is being done are both important, not the company you work for or where the money is paid. Those latter two facts might factor into a determination of residency though.

nun

being self employed in the US is expensive......15.3% self employment tax for a start. You will have to work out your residency status for last year to figure out who you pay......what was your US visa status prior to getting the Green Card? Because you did the work in the UK and presumable spent quite a bit of time there during the tax year you might have to pay the UK as well, but tax credits should make sure you are not taxed twice.

tht

right and to further complicate, if she was not required to pay tax on that income in the UK, it might no qualify for teh foreign tax credit:

What Foreign Taxes Qualify For The Foreign Tax Credit?

nun

Sure, if 0% tax, then there's obvioulsy 0% FTC.

Rimbaud

Thanks for the reply. No kidding on the expense of self employment here. We have figured out 2014, residency and tax and so on, or at least worked out what we are submitting, then it's fingers crossed anyway. The accountant seems confident.

Where I am uncertain is the best way to proceed. Best to just have my UK employer pay me with UK taxes taken out as normal and take the hit on the extra 10% for NY state and city? Obviously contractor fee is not sustainable for me, and they have no immediate plans to form a US business.

Elsewhere on the thread they are suggesting people tell HMRC they are not a UK resident, receive a UK refund and pay US taxes, but I haven't a clue how to go about this or if it is even the right thing to do.

Michael

You are going to have to pay US taxes as self employed. Typically someone normally would not work as self employed for the same salary as an employee since the employer doesn't pay their share of FICA taxes, unemployment insurance premiums, workman's compensation premiums, long and short term disability premiums, vacations and holidays, health and life insurance, bonuses, stock options, and other benefits. Therefore whenever my previous employers hired contractors, typically their pay was 50% or greater than an employee's pay with similar experience.

tht

right, but if it is more 0, but NOT an "actual foreign tax liability" there would also still be 0 FTC, leaving someone with a US tax bill to pay and foreign tax to claim back.

Rimbaud

Thanks for the reply. Ironically, I've gone from relatively senior in the UK job, to a sales role here in the states. So the salary's taken a hit, although commission upside could be good. I have some equity and we have some medium range US plans, so it's worth staying with them, but I can't afford to give 50%+ away being self employed, that's bonkers.

tht

I don't think you are really comparing apples to apples, you would be paying the employee SS and medicare "tax" or NI in the UK anyway, which is half of the 15% and you would also be paying income tax on the income as an employee, so its only the employer part you have to pay extra. As others have noted you should ask your employer to gross up by what they were paying for the employer NI before, it wont cost them anymore than they were paying before.

Also those 2 self employment taxes are only on the first $117k of income, and this is deductible against your gross income, what you should be looking at is how to reduce the income that you would be taxed on, e.g. the costs that you could claim against that income, home office, flights etc if you are self employed.

nun

You are missing the point. If you live and work in the US you must pay US income taxes. If they are not taken out by your employer you have to pay quarterly estimated taxes using a 1040-ES. You and your employer must also pay SS and Medicare tax unless you are using the US/UK reciprocal SS agreement. If you are living and working in the US you won't get any US credit for UK taxes withheld in error. If you want to avoid double taxation it's up to you to get a refund from HMRC.....also if you are not paying the IRS promptly there could be some fines, fees and interest.