crosses

Dear All,

I am an Italian citizen, I recently arrived in the US on a J1 research scholar visa after 7 years in the UK. I've been told that for the US I am a UK tax resident, so the US-UK tax treaty applies rather than the US-Italy (the latter does not have a retroactive clause so I got screwed). I plan to stay in the US for longer than 2 years.

- Do I need to pay taxes in the UK for my US income? If so, what do I need to do? If there is a way of avoiding paying taxes on this in the UK it would be great.
- If I do not invoke the UK-US tax treaty and pay the US taxes in full without asking for a refund will I be safe from fines and interest once the 2 years have passed?
- Is there any way to become resident in the US for tax purposes now to just pay taxes in the US from the beginning and avoid headaches?

Thanks a lot!

LegalEagleTX

It's been a while since I looked at this but I believe in a nut shell you will become a U.S., and cease to be a UK, tax resident from the day you arrive. You will be liable for U.S. tax on your worldwide income. You will be subject to UK tax on your UK sourced income. You ought to be able to claim a U.S. tax credit for any UK tax you pay on that UK sourced income. Tax residency is usually triggered by the number of days you reside in a country, once crossing that threshold backdated to the first day. Best to get proper tax advice though.

crosses

mmm... that will surely happen after 2 years when I will become a resident alien for the US. I am wondering about what happens in the first 2 years when I am a non-resident alien. Do I need to pay taxes in the UK for my US salary even if I left the UK and I am not a UK citizen? If so what do I need to file with HMRC?

Thanks!

LegalEagleTX

You can lead a horse to water...

tht

hint immigration and tax are 2 separate things…

you need to look at each countries rules separately, it is possible to be tax resident in more than 1 county, but it’s unlikely if you move full time.

https://www.irs.gov/individuals/inte...-presence-test

Rete

How will you obtain US residency status in two years?

crosses

Rete tht As a J1 visa scholar I am not subject to the substantial presence test for the first 2 years and I have been told that for these two years for the US I keep my previous tax residency (the UK in this case). After these 2 years I become a US resident for tax purposes. If I weren't a J1 visa scholar I would become a US tax resident much earlier. Immigration and tax are different things, but your immigration status affects your tax, at least with the US.

So for the US I am resident in the UK for tax purposes. However on the HMRC website it says that if you move abroad for a full time employment and have no home in the UK (and a bunch of other conditions that apply in my case), then for the UK you become non resident in the UK for tax purposes. Hence my confusion: it seems like for each country I am a tax resident in the other so there is definitely something wrong here.

There is another condition in the US-UK tax treaty that is specific to J1 scholars: if you stay in the US for less than 2 years you do not pay taxes in the US, but if you stay for longer then you must pay taxes in the US for the whole duration of your visa program (independently from your tax residency in the first 2 years). Since I plan on staying for 3 years I will thus need to pay takes in the US. My question then is: do I also need to pay taxes in the UK for my US income (which is my only source of income)?

Nutmegger

I get the feeling he is using the term resident alien incorrectly.

crosses

Nutmegger right sorry, by "resident alien" I meant "US resident for tax purposes". I will stay a non-resident alien, but become a US resident for tax purposes.

civilservant

Stop using the term resident alien right now. Resident Alien has a very specific legal definition in the US. That is a 'Green Card' holder. It is an immigration status, not a tax status.

If you use this in dealing with the IRS, and they record your status incorrectly as a result, you could get yourself into a whole heap of trouble.

tht

I think you need to do more research, yes there are some J1 specific rules, but if I recall they relate to FICA and treatment of non US income, the first place to start your research is the IRS website, also remember many states and some cities have their own tax, which is all separate to the IRS:
https://www.irs.gov/individuals/taxa...ion-status-j-1

a google search brings up sites that seem to be targeted at people in your situation;
https://www.novacredit.com/resources...w-about-taxes/

Rete

Yup. He is unfamiliar with non-immigrant and immigrant terminology. Thanks, Meg.

crosses

I do not need help with the IRS or US tax filing, my employer here is going to help me out with that. My question is exclusively about UK tax filing: I just need to know if I need to file anything with HMRC and if so what, and if I need to pay any taxes in the UK on my US salary. Can anyone help me with this?

civilservant

Money earned in the US, when physically present in the US, is taxed in the US. I don't know where you have got the idea that you will need to pay tax in the UK on US income from, but it isn't correct, since you will be physically present in the US.

You may, in fact, be able to get a refund on any tax paid in the UK this year since it was withheld as if you had earned that amount for the full year, which you will not have if you've moved to the US.

Glasgow Girl

I believe you will qualify as non resident for UK tax purposes (but be careful of the number of days you spend in the UK which could impact that status). That means you will not be required to pay UK tax on any income derived in the US (or anywhere else in the world) but you will have to pay UK tax on any income derived in the UK (usually interest, dividends, etc). As a US tax resident, you will have to pay tax to the IRS on all worldwide income.

In the year you move, you will be treated as resident in the UK until the day you move and will pay UK tax as normal until that day. The IRS will require you to pay tax on all worldwide income from the day you enter the US.

You can claim tax credits in the US for any tax paid in the UK, such that if the UK tax is more than the US tax on UK derived income there is nothing further to pay to the IRS, but if the US tax is more then you will have to pay the difference to the IRS.

This link will help you. https://www.gov.uk/tax-foreign-income/residence. If you have more questions or need clarification, email or call them, they are usually very helpful. The IRS not so much.