viol8torUK

Hi there,

first post so be gentle with me!!

I am a UK citizen, currently living and working in the UK. My wife is a US citizen, currently living with me in the UK.

We are contemplating moving to the US next year, as she is finding it increasingly difficult to find work in the UK. She will easily be able to get her old job back in the US.

My employer (a small UK company) has told me that if we move to the US, I will keep my job.

My question revolves around taxation etc.... getting a visa should be 'relatively' easy. We have been married almost 2 years, and we will both have jobs waiting for us in the US.

So, my question is this:

My employer is a UK company, they don't have a 'US office' although they do have US customers.

Would I be better off being paid £ into my UK bank account and then organising the transfer to my US account (I'm assuming my bank would charge me for this, so I would have to take this into account when negotiating my salary) or would I be better being paid directly in $ to my US account. Personally I would be prefer to be paid in $ directly into my US account.

I'm not sure how taxation would work regarding all this. Would I still pay UK tax on my salary and then put it under foreign earned income on my 1040? My employer has no intention of opening up a US office, so I would always be paid directly from the London-based company.

We are planning to live in the US indefinitely and my salary is always going to be paid from London. Would this cause any problems in the future, i.e. 10years down the line..... will I always have to pay UK tax and put my wages down as foreign earned income on my US tax return, or will there be a cut-off period when I would pay US tax instead of UK tax..... ?

Lots of questions I know, but this is all very new to me....!

Thanks for reading...

Tony

Noorah101

Hi Tony, Welcome to BE.

As soon as you enter the USA using your spouse Immigrant Visa, you become a US Permanent Resident, and are responsible from then on for filing a US tax return, and for reporting worldwide income.

Basically, you and your wife will do US tax returns, you will both report all worldwide income, and go from there. You won't need to file a UK tax return anymore (unless you also have some property in the UK that warrants it). There is a tax treaty in place between UK and USA so you don't have to pay tax in both places, but you DO have to report the income on your US tax return.

I'm sure someone else will come along with more details.

Best Wishes,
Rene

penguinsix

One of the problems in this set up is that technically your UK company paying a salary to an individual living in the US should be withholding your income, Social Security and Unemployment taxes (think PAYE expenses). These expenses are in addition to what they pay you, but going through this paperwork nightmare is too much for most UK companies to do.

So what happens is often they end up paying you as a consultant, but in that scenario YOU get stuck with the added taxes.

For example, let's say you make $10,000 a month. The company you work for would take out YOUR federal, state, and social security taxes and pay them directly to the government. In addition, the company would have to pay an additional $1,000 or so for THEIR (the company's) social security contribution and unemployment contribution. For an American company to 'hire' someone at $10,000 a month actually usually costs them about $11,000 a month (about 7-9% more).

Now, if your company doesn't do that, you are considered 'self-employed' and that exposes you to the 'self-employment' taxes. You still have to pay YOUR federal, state, and social security taxes, but in addition you also have to pay THE EMPLOYER'S share of their contribution to social security and unemployment (i.e. -10% from your take home pay).

It's a bit of a conundrum. I know many UK companies with US employees that set up 'shell' companies in the US and forward the salary and PAYE/Social Security payments to the shell company just for handling payroll.

My advice is to talk to an accountant in the UK who deals specifically with US-UK tax issues (you can find a list at the 'Talk Yankee' US expats in the UK website). They'll have been through this before (and I can assure you most US-based accountants will not have a clue).

viol8torUK

thanks for your quick response Rene,

Following on from your reply I guess my next question would be.... should my UK employer be deducting UK tax from my wages at source, with me declaring that on my US tax return, or should I get paid my full (gross) salary and then pay tax in the US?

I'm not sure how this works if this is my only income and I will always be paid from the UK. I can understand being taxed in the UK if it was a temporary solution, but if I will always be paid from the UK, forever, until I retire in another 30-ish years time, will not paying tax in the US have a detrimental effect on any benefits I could be elligible for in the US in the future....

Thanks again.....

Tony

Michael

As was stated earlier, you should be an employee instead of a contractor if at all possible. As a contractor you are not covered for unemployment benefits if you are made redundent, not covered by state disability insurance, you would have to pay the companys share of social security and medicare, etc.

Therefore it would be best for you if the UK company hires you as an employee and handles your witholdings, government employee taxes required to be paid by the company, as well as benefits for you (healthcare insurance, vacation, life insurance, etc.). Since you would be the only employee in the US company, you may have to learn and perform the payroll function as well as your normal job.

Cape Blue

Think Medical - your UK employer won't have a US plan, you need to make sure you can be covered by your wife's plan or you will need to fork out a few hundred a month for your own private plan (to later be told something was a pre-existing condition or not covered etc).

viol8torUK

So - if I understand this correctly, in simple (idiot) talk it would seem that setting up a shell company in the US would make the most sense... I would be paid my gross salary into that shell company and would then be responsible for my own payroll.... in effect I would be employed by a US subsidiary of the UK company and would only pay US taxes.

Regarding medical..... my wifes medical will cover me when she returns to work in the US

penguinsix

The shell company makes sense if your employer is willing to send across the extra bits to cover your PAYE-like expenses (i.e. unemployment, social security contributions, etc). If they are just sending over EXACTLY your salary and nothing more, then having a shell company is a bit of a burden actually (paperwork) as in the end you are going to be paying the employer contributions out of what was once your salary, so what the heck, be a consultant and just pay the self-employment tax.

If you are salaried in the UK, the PAYE expenses they are paying is about the same as the contributions they'll be making over here, so it shouldn't really be a major financial difference to them.

But I'd still spend an hour with a UK - US accountant to see if they might have a better solution. Might be money well spent. You might want to talk to them about how to set up an LLC in the US to handle the paperwork (and to avoid the parent company from getting trapped in any US tax reporting requirements, which I'm sure they'd hate). There might also be some issues as they have US clients.

viol8torUK

Thanks for your reply... I forgot to add in that I would expect my employer to also pay my PAYE equivalent expenses as I am definitely not going to pay them out of my salary!!

If the PAYE-like expensenses are at a similar rate to the UK, then I don't see why my company should have a problem paying them, via a shell company that I administer in the US (possibly an LLC depending on how my employer wants to do this).... It just means I'll have to get to grips with the US tax system quicker than I'd wanted to!!

I have an appointment with one of my company directors tomorrow morning to discuss all of this and more.... currently, moving to the US is only an idea, not a foregone conclusion, which is why I wanted as much information as possible prior to agreeing to it.

Tomorrow is going to be a very interesting day!

Thanks again all of you for your help.....

Peter Newton

Hi:

Assuming you lose your tax residence in the UK, all of your duties are performed outside the UK, and none of your salary is remitted to the UK- then you would not be liable to any UK tax.

So your UK employer could pay you gross directly in the US.

You would then only have to worry about US tax/social security etc.

If you are classified as a contractor in the US, it would save the UK company from having to pay medicare/social security taxes on your earnings. You would instead pay self employment tax yourself which is the same in total but easier to deal with.

Cheers
Pete

Dan725

Exactly my thoughts.

viol8torUK

Hi guys, and thanks for all your thoughts, especially the last couple of comments.

I had my meeting with one of our company directors yesterday, and next week I start my visa application with a view to moving in March next year (hopefully).

I briefly discussed wages/taxes etc, and it looks like, initially, I will be employed as a contractor, but in the long term there may be a shell company set up.

So.... to lose my tax residence in the UK I'm assuming I have to be living outside the UK, with no earnings in the UK at all. If all of my contracted work is carried out in the US, and I am living in the US permanently, then that would count?
If my wages are paid gross to me in dollars each month, then I just need to pay self employment tax (plus state taxes as well) - is that declared and paid annually, or every month? Also, would this self employment tax contribute towards social security taxes etc or would that be an extra payment? If it was an extra payment, then my UK employer have said they will increase my gross pay to cover it (as they pay those things for me over here in the UK).

I also have to consider and try to understand how state taxes as well as federal taxes work as well..... what I should be expecting to have to pay etc.... I'll be moving to CA (Orange County/Lakewood/Long Beach area).

Anyway, I'm about done with work for the day - time to go home and see what I can find out about Self Employment Tax!

Thanks again for all your help so far.

Tony

Dan725

Tony,

Once you emigrate, your permanent residence will be the US...hence the no tax liability in the UK. Working in the US as you are intending to do, plus living here in the US, will certainly qualify. To go a stage further. In 2007, I ended up picking up 7-8 months total of contract work in Abu Dhabi and the UK. I went to both places to do the work....it doesn't mean I become a UK or UAE resident, because my place of resident is still the US and I'm playing to the tune of the IRS, not the Inland Revenue. As will you.

Paying of Self Employment Tax in the US. Yeah, this can be challenging, as with anything financial here. I have learned SO much more about finances from living here for 6 years than I did in a lifetime in the UK. The year I was self employed, especially so. Regarding frequency of payment in the US of self employment taxes, by the letter of the law you have to pay quarterly (I'm talking Federal; don't know State as FL has no State income tax). Payments can be made online via https://www.eftps.gov/eftps/

Note what you are paying is estimated taxes.....you are required (as is everyone here) to submit a tax return at the end of the year (in the early new year), which will determine your exact taxes. You will either end up paying more or less than the total estimate submitted. Yes - Self employment taxes encompass your payments towards your required social security and medicare payments.

Here's another thing for you think about. If you were self employed in the US, all people you do business for here would be required to submit a 1099 contractor form to the IRS. With you technically working overseas for a foreign (UK) client, they will not have to submit said form, so you will effectively be self declaring your earnings in their entirety, so will have to keep an eye on exchange rates, etc. Of course, if they pay you a predetermined dollar amount, that's a bit easier.

For my self employed year, I filed the tax return myself. I used the home and business edition of online program Turbotax http://turbotax.intuit.com/ to do it - and really, so long as you keep all your books straight, save every receipt and do your own accounting as you go, its really not that tricky to do. Turbotax will advise you as to what deductions are available to you - you will find that being self employed here, you will live and die by making sure you get every single deduction and write off you possibly can. While it helps, do not rely on the turbotax wizard here - you need to wade through the IRS publications for peace of mind. Here's an excellent start point: http://www.irs.gov/taxtopics/tc500.html. By the sounds of your case, I'd get especially familiar with home office and equipment deductions, and travel expenses, inc. international ones.

If you are unsure about doing it yourself, do the same good book keeping, but when it comes to filing, it may be beneficial to enlist an accountant....but IMHO if you are a savvy internet researcher, you don't have to....being self employed here is immensely more complex than being on the books when it comes to tax time, but as I've pointed out, not the end of the world with practice.

Good Luck!

Peter Newton

Hi:

Generally, you lose your residence in the UK for tax purposes if you spend an annual average of 90 days or less in the UK, and no more than 182 days in any one particular year.

This is very general and HMRC can also look at your personal situation to determine whether you are resident or not.

If you leave the UK to work abroad you will be considered not resident from the day after you leave, so long as you plan to be gone for a whole tax year.

As a contractor in the US, you would file a self employment tax return along with your regular income tax return each year. However, over the course of the year you will be required to pay quarterly estimated income and self employment taxes in order to avoid a penalty at year end.

Your self employment taxes in the US do count towards your social security benefits and there are no extra payments involved.

Most states also impose a seperate state income tax and require the filing of a state income tax return.

Hope this helps
Pete

Peter Newton

Dan- fair play to you for doing it yourself.

I just wanted to mention that each tax season I probably see 5 or 10 people who did their prior year taxes themselves using programs like Turbotax, and have gotten audited because of mistakes. Turbotax can only calculate based on the information you give it.

As you mentioned, self employment only makes your tax situation more complicated: instead of wading through the IRS publications it may be more cost effective to hire an accountant who knows the rules, will find you all the right deductions, and will get the return right first time.

By the time I've charged clients for dealing with an audit and re-filing the return it has cost them more than if they had come to me in the first place.

Just my $0.02
Pete