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Tax Residency in first year of green card

Tax Residency in first year of green card

Old May 9th 2020, 11:48 pm
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Default Tax Residency in first year of green card

Hi all.
My UK citizen spouse got his green card through marriage to me, a US citizen. We came through New York to activate the visa in July and then went back to the UK right away. It took us a long time to wrap things up in the UK and find a job, etc., so we didn't actually move permanently to the US until early this year. (We edged past the 180 day absence thing, but actually spoke to an immigration agent at the airport who was pretty relaxed about it.)

He's trying to file a tax return for 2019. It appears he is classed as a US resident for tax purposes as of the July entry date, even though he was still living and working in the UK the entire tax year. I filed (married filing separately) non-resident on the f2555 through the physical presence test, but it appears he can't, as his green card status means he's automatically a resident.

This is a bit alarming because it sounds like he's liable for the flat 30% tax on his UK income from July to the end of the year.

Have I missed something, or is this the correct state of things? Any help appreciated, although I suspect we should probably find some sort of tax professional who knows about all this.
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Old May 10th 2020, 5:42 pm
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Default Re: Tax Residency in first year of green card

Originally Posted by SFNative View Post
Hi all.
My UK citizen spouse got his green card through marriage to me, a US citizen. We came through New York to activate the visa in July and then went back to the UK right away. It took us a long time to wrap things up in the UK and find a job, etc., so we didn't actually move permanently to the US until early this year. (We edged past the 180 day absence thing, but actually spoke to an immigration agent at the airport who was pretty relaxed about it.)

He's trying to file a tax return for 2019. It appears he is classed as a US resident for tax purposes as of the July entry date, even though he was still living and working in the UK the entire tax year. I filed (married filing separately) non-resident on the f2555 through the physical presence test, but it appears he can't, as his green card status means he's automatically a resident.

This is a bit alarming because it sounds like he's liable for the flat 30% tax on his UK income from July to the end of the year.

Have I missed something, or is this the correct state of things? Any help appreciated, although I suspect we should probably find some sort of tax professional who knows about all this.
He came and became a PR. As a PR your are taxed on your worldwide income like a USC.

I am not aware of any flat 30% tax. You complete you tax return and it figures out what is owed. What you are probably missing is that double tax agreements exist between many countries to avoid double taxation, so he should get a credit for UK tax’s (not NI) paid against any federal tax he owes.

Depending which state he is a resident in (what address did his green card go to) he may also be liable to state and city taxes, for those he can’t use any remaining UK tax credit.

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Old May 10th 2020, 8:37 pm
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Default Re: Tax Residency in first year of green card

Originally Posted by tht View Post
He came and became a PR. As a PR your are taxed on your worldwide income like a USC.

I am not aware of any flat 30% tax. You complete you tax return and it figures out what is owed. What you are probably missing is that double tax agreements exist between many countries to avoid double taxation, so he should get a credit for UK tax’s (not NI) paid against any federal tax he owes.

Depending which state he is a resident in (what address did his green card go to) he may also be liable to state and city taxes, for those he can’t use any remaining UK tax credit.
https://www.nolo.com/legal-encyclope...xes-29639.html

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Old May 10th 2020, 8:40 pm
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Default Re: Tax Residency in first year of green card

Yes, there is the tax treaty (the general language the Tax Guide for Aliens uses is 30% or tax treaty terms). More importantly, I think what I missed is that you can be a resident alien AND have your tax home elsewhere, so he can still take the foreign earned income deduction, the same way I have been for years while we were in the UK.

Also, while
You complete you tax return and it figures out what is owed.
is of course perfectly correct, it's also such a simplified version of the whole US tax return rigamarole that I am weeping with laughter and pain.
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Old May 10th 2020, 9:54 pm
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Default Re: Tax Residency in first year of green card

Originally Posted by SFNative View Post
Yes, there is the tax treaty (the general language the Tax Guide for Aliens uses is 30% or tax treaty terms). More importantly, I think what I missed is that you can be a resident alien AND have your tax home elsewhere, so he can still take the foreign earned income deduction, the same way I have been for years while we were in the UK.

Also, while

is of course perfectly correct, it's also such a simplified version of the whole US tax return rigamarole that I am weeping with laughter and pain.
In theory you can. But it could have immigration implications. The criteria for a PR claiming it are here:
https://www.irs.gov/individuals/inte...come-exclusion

And you are right, when you are doing foreign taxes you have to do a bit more than the US alone, the biggest pain being FX and the difference in the tax year, so you have to apportion everything in to the right years.

If your higher rate tax payer in the UK you likely have a big enough credit, the issue is if you live somewhere like NYC, then you can easily be paying a lot more for city and state and end up with a federal credit that you can’t use.



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Old May 11th 2020, 3:24 am
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Default Re: Tax Residency in first year of green card

For us, it'll be easiest to take the income exclusion. He shoved money into his pension and paid all the nursery fees (employer-provided nursery) pre-tax, so his taxable income, and therefore his tax amount, was fairly low. In fact, we used to joke that we couldn't have any more kids because we'd be paying his employer for the privilege of his working there.
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Old May 11th 2020, 12:54 pm
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Default Re: Tax Residency in first year of green card

Originally Posted by SFNative View Post
For us, it'll be easiest to take the income exclusion. He shoved money into his pension and paid all the nursery fees (employer-provided nursery) pre-tax, so his taxable income, and therefore his tax amount, was fairly low. In fact, we used to joke that we couldn't have any more kids because we'd be paying his employer for the privilege of his working there.
Others on here know a lot more about pensions, I thought most foreign ones were considered “non qualified plans” so it was my understanding contributions and even employer matches were taxable income in the US, but I only ever gave it a quick look and that was 10 years ago.
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Old May 11th 2020, 1:09 pm
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Default Re: Tax Residency in first year of green card

Originally Posted by tht View Post
Others on here know a lot more about pensions, I thought most foreign ones were considered “non qualified plans” so it was my understanding contributions and even employer matches were taxable income in the US, but I only ever gave it a quick look and that was 10 years ago.
I believe this is correct, when reporting UK income on the US tax return the gross income is before any UK pension contributions plus add in any contributions made by the employer to the gross amount. This is what my son, US/UK dual citizen living in England does. Since he has no other foreign income he keeps it simple and excludes his UK wages with form 2555. You can also use foreign tax credits, form 1116 for credits on foreign taxes paid on any foreign income, which is what my wife and I do as we have no earned income, just pensions, interest, dividends etc.
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Old May 11th 2020, 6:26 pm
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Default Re: Tax Residency in first year of green card

Yes, correct. Both the nursery fees and pension are taxable income in the US, but were paid pre-tax in the UK, so the amount of taxable income in the UK- and therefore UK tax and any US tax credit- was small. But the amount of taxable income in the US would be much larger. So we don't want to use foreign tax credits, as that probably wouldn't be enough, given that UK taxes were only paid POST pension and nursery fees.
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Old May 11th 2020, 10:34 pm
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Default Re: Tax Residency in first year of green card

Originally Posted by SFNative View Post
Yes, correct. Both the nursery fees and pension are taxable income in the US, but were paid pre-tax in the UK, so the amount of taxable income in the UK- and therefore UK tax and any US tax credit- was small. But the amount of taxable income in the US would be much larger. So we don't want to use foreign tax credits, as that probably wouldn't be enough, given that UK taxes were only paid POST pension and nursery fees.
I assume you just enter the data in to TurboTax or similar and compare credit vs deduction and go with whatever comes out lower, you just save 2 versions and compare:
https://www.irs.gov/individuals/inte...t-or-deduction

The biggest surprise I had in the years I had to do this was the state and local and also that the NI paid in the UK is not a tax so there was also no credit for that.
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Old May 12th 2020, 2:55 pm
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Default Re: Tax Residency in first year of green card

Originally Posted by tht View Post

The biggest surprise I had in the years I had to do this was the state and local and also that the NI paid in the UK is not a tax so there was also no credit for that.
The same goes for FICA in the USA. They are both considered as mandatory contributions to a future pension (SS and OAP). The kicker is that once you start taking SS, if you have less than 30 years of contributions, then payments are reduced depending on how much OAP you are receiving. This is part of the WEP rule which reduces your SS if you are in receipt of other pensions earned by wages that did not also pay into SS.
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