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UK/USA Dual Citizen moving to California

UK/USA Dual Citizen moving to California

Old Jun 30th 2012, 7:59 pm
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Default UK/USA Dual Citizen moving to California

Hi,

I am a 25 year old UK/US dual citizen. I was born in the US and from birth I have held both a British and American passport. I lived in the US from the age of 0-1 then moved back to the UK and have lived here since. Both my parents are British.

I applied and received a US social security number in June 2012. I have never filed tax returns to the IRS (because I did not have an SSN until now).

I plan to move to San Francisco in May 2013 with my current British employer. I will be the sole representative for my company in the US and initially I will work from home rather than open an office.

My current salary is £40,000 ($63,000).

My questions are:

1. If my employer continues to pay me through the UK bankroll - will I still need to file tax returns to the IRS?

2. If I am already paying taxes in UK will I actually have to pay any taxes to the IRS on my current salary? I hear the US and UK have some kind of salary limit when you have to pay taxes in both countries - anyone know of documentation on this?

3. Would it be better to get my employer to setup a US bankroll and pay me through that?

4. What's the best way to transfer money from UK account to US account - best rates without paying fees etc?

Many thanks in advance!
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Old Jun 30th 2012, 10:05 pm
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Default Re: UK/USA Dual Citizen moving to California

I know that more qualified people than me will give you answers, but a couple of things I had to deal with are not disimilar to your queries.

I dont think you have to declare anything to the IRS that was accounted for taxwise in the UK. My wife and I get our british pensions paid directly into our US bank. We didnt have to declare anything that was arrived at by way of money that was already taxed in the UK, and we dont declare that annually when time comes to pay tax's.

Regarding transferring money from the UK, we had a largish lump sum paid directly into our US bank account. I think the US bank (Chase in our case) has to advise the IRS of any sum over $10,000, but that should be a formality.

There are cleverer people than me who'll know doubt fill in the blanks.

Pete
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Old Jun 30th 2012, 10:44 pm
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Default Re: UK/USA Dual Citizen moving to California

Lacking a SSN doesn't prohibit you from filing your US taxes. Many aliens apply for ITIN numbers just for this reason. Because you are a US citizen you are required to file a US tax return (this is not to say that you will owe heaps of tax). Citizens are required to report world-wide income whether it continues to be paid in another country or not. HTH!
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Old Jun 30th 2012, 11:52 pm
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Default Re: UK/USA Dual Citizen moving to California

Originally Posted by tfc3000 View Post
I have never filed tax returns to the IRS (because I did not have an SSN until now).
You don't need a SSN to file a US tax return. That said... by US law, all US citizens are required to file a tax return if they meet the minimum income threshhold for filing... regardless of where in the world they live, and regardless of whether or not they know they're supposed to file. That is the law.


1. If my employer continues to pay me through the UK bankroll - will I still need to file tax returns to the IRS?
Yes... absolutely!


2. If I am already paying taxes in UK will I actually have to pay any taxes to the IRS on my current salary?
Probably not. The US/UK tax treaty usually means that you avoid double taxation.


I hear the US and UK have some kind of salary limit when you have to pay taxes in both countries - anyone know of documentation on this?
Umm... I'd start with www.irs.gov. The information is there.


3. Would it be better to get my employer to setup a US bankroll and pay me through that?
It'd probably be easier for you to get your money in the US that way rather than having to continually transfer it from the UK.


4. What's the best way to transfer money from UK account to US account - best rates without paying fees etc?
There will be fees... so expect them. Many people use www.xe.com.

Ian
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Old Jul 1st 2012, 12:35 am
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Default Re: UK/USA Dual Citizen moving to California

[QUOTE=
Probably not. The US/UK tax treaty usually means that you avoid double taxation.

Ian[/QUOTE]

Not sure about CA, but in NY that only works for federal tax, but not state and city, only income from other american states and Canadian provinces can be used as credit against those taxes.

tht
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Old Jul 1st 2012, 1:13 am
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Default Re: UK/USA Dual Citizen moving to California

Originally Posted by Peteusa View Post
I know that more qualified people than me will give you answers, but a couple of things I had to deal with are not disimilar to your queries.

I dont think you have to declare anything to the IRS that was accounted for taxwise in the UK. My wife and I get our british pensions paid directly into our US bank. We didnt have to declare anything that was arrived at by way of money that was already taxed in the UK, and we dont declare that annually when time comes to pay tax's.

Regarding transferring money from the UK, we had a largish lump sum paid directly into our US bank account. I think the US bank (Chase in our case) has to advise the IRS of any sum over $10,000, but that should be a formality.

There are cleverer people than me who'll know doubt fill in the blanks.

Pete
I may be completely wrong here, but I always thought that if you are a US permanent resident then you have to declare your world wide income in your tax returns; and that would include income from pensions in the UK.

If you are resident in the UK why would you be paying UK income tax on your pension if you have declared yourself non resident in the UK?

Or, even if you pay income tax in the UK why does this mean that you don't declare the income on your US tax return?

Have I missed something here?
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Old Jul 1st 2012, 1:27 am
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Default Re: UK/USA Dual Citizen moving to California

As a US citizen or resident you have to declare your worldwide income to the IRS.

Before the OP moves to the US they should get their US back taxes sorted out. All US citizens must file annual tax returns with the IRS. So look into filing back taxes. If you have things like UK stock ISAs, investment funds or pensions it will probably be best to get a professional to handle things.

As you are a US citizen it doesn't matter to the IRS where you get paid, you still have to declare your income to the IRS. You need to talk you your UK company to figure out your payroll situation regarding things like FICA and social security tax and also health insurance, how do you/they plan to deal with that?

Last edited by nun; Jul 1st 2012 at 1:36 am.
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Old Jul 1st 2012, 1:34 am
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Default Re: UK/USA Dual Citizen moving to California

Originally Posted by Peteusa View Post
I dont think you have to declare anything to the IRS that was accounted for taxwise in the UK. My wife and I get our british pensions paid directly into our US bank. We didnt have to declare anything that was arrived at by way of money that was already taxed in the UK, and we dont declare that annually when time comes to pay tax's.
I'd double check your taxes. UK private pensions paid to US residents are taxable in the US, but not taxable in the UK. You should have filed a US-Individual-2002 with HMRC to exempt your UK pensions form UK taxation.

If you didn't do that and are having tax withheld in the UK you still have to include UK pensions on you 1040 and claim a tax credit for aUK tax paid.
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Old Jul 1st 2012, 1:55 am
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Default Re: UK/USA Dual Citizen moving to California

Also, if you move to the US before your 26th birthday you should register for Selective Service.

Failure to do so won't have any immediate consequences but it could disqualify you from receiving certain government benefits later.
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Old Jul 1st 2012, 2:27 am
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Default Re: UK/USA Dual Citizen moving to California

Originally Posted by tht View Post
Not sure about CA, but in NY that only works for federal tax, but not state and city...
No one cares about state or city tax... including the IRS. Besides, one must usually be resident in a state/city to be liable for such tax. OP is concerned about double taxation - that's an IRS issue... nothing to do with state or city taxes.

In fact, I'm not even sure why you're bringing state/city tax into the conversation.

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Old Jul 1st 2012, 2:29 am
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Default Re: UK/USA Dual Citizen moving to California

Originally Posted by tfc3000 View Post
I am a 25 year old UK/US dual citizen...
Except for the change from New York to California, how is this stuff substantially different than your posts from last year? It now seems you're just trying to waste our time.

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Old Jul 1st 2012, 3:19 am
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Default Re: UK/USA Dual Citizen moving to California

Could've been a different tfc3000.
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Old Jul 1st 2012, 5:28 am
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Default Re: UK/USA Dual Citizen moving to California

Originally Posted by tfc3000 View Post

I plan to move to San Francisco in May 2013 with my current British employer. I will be the sole representative for my company in the US and initially I will work from home rather than open an office.

My current salary is £40,000 ($63,000).

My questions are:

1. If my employer continues to pay me through the UK bankroll - will I still need to file tax returns to the IRS?

2. If I am already paying taxes in UK will I actually have to pay any taxes to the IRS on my current salary? I hear the US and UK have some kind of salary limit when you have to pay taxes in both countries - anyone know of documentation on this?

3. Would it be better to get my employer to setup a US bankroll and pay me through that?

Many thanks in advance!
Let's start with being a bit general, which might a bit scary, but then I'll modify things and explain some of the exemptions and exclusions from the general blunt statements.

1) You have to file a US tax return every year, and should have been filing in the past regardless of whether you had an SSN.
2) If you are working in the US, you pay taxes in the US regardless of where your actual payroll check gets deposited.
3) You need to file a FBAR report, or should have been reporting, any bank account that you have overseas if you have > $10,000 USD in that bank account AT ANY TIME (or $10,000 in aggregate across multiple accounts at any time). You also need to file a FATCA report if you have > $250k USD overseas (it's a sliding scale, but about that much).
4) You need to file a form 5471 if you own > 10% of a foreign company (more or less).
5) You need to register for US military service if you are over 18
6) You need to enter the US on your US passport and not your UK passport.

Now, let's try to qualify some of those things.

You are required to file US taxes every year until you renounce your US citizenship (and then possibly a few years after that). However, there are certain exemptions and exclusions if you live overseas, such that the practical effect is that if you make < $92,000 USD you basically don't owe any US taxes. There are also credits for taxes paid to the UK that offset your US taxes owed. And with the general rule is 'if you don't owe, you don't have to file' it results, basically, in that you probably aren't in any trouble for a lack of filing over the past few years. NOTE: Any income from the US such as interest income or rental income from US properties is NOT part of this exclusion and there might be taxed owed on this.

In your case, you have probably not crossed over the threshold of having to file US taxes. Most accountants would **strongly recommend** filing even if you don't owe anything, but whether you do a back-filing for the last few years would probably be a judgement call after talking to a professional or the US embassy tax office in London. If you want you can grab a US 1040 form and fill it out, and then see if you actually owe anything for last year. Might give you an idea of whether you had any problems in the past.

Now, generally speaking, as you will be physically present in the US working, you will be "working" in the US, regardless of where you actual paycheck is deposited. This may be a problem. People working in the US need to have a visa or work authorization (which you have) but they also need to obey US employment laws and tax withholding, unemployment and retirement payment (social security) deductions, which you won't be if you are being paid in the UK. As your employer is in the UK, it is highly likely they a) aren't going to do the US withholdings necessary and b) do not want to even get involved in any way shape or form with withholdings required for a US employee as it would require them to 'open their books' to the US government basically. There might be some ways around this but I think they are generally for temporary workers or those who do not have a physical presence in the US over a certain number of days. Someone else might speak better as to how this bit works.

The issue of how to deal with this will vary depending on your circumstances. In some cases setting up a US 'shell' company that handles all the payroll matters is a possibility. In others you being treated as an 'consultant' will work (though you will have to pay a greater share of employment taxes yourself unless you work out a deal with your company).

For example, you are going to be paid $60,000 USD. If a USA company was paying you $60,000 USD, it would actually cost them about $66,000 USD a year. That extra $6,000 would be for social security and Medicare payments and unemployment insurance payments (I think the UK term of art is PAYE deductions). If you do not have a US company making these payments, guess who gets to do it? YOU. So you would make $60,000, then pay $6,000 for the company's share of the taxes (the so called self-employment taxes). Then you pay your taxes. Basically, this setup costs you a bit

This sort of thing is really best done by professional accountants with understanding of US/UK border transactions. Whether you set up a US shell or work as a consultant will probably be based on the long term plans of your company and your own financial situation. Personally, my recommendation would be to bill as a consultant to the UK company, but have them pay the extra bit to cover your self-employment taxes if you are the only employee, but if you anticipate hiring up and renting an office and establishing your company here in the US, you'll probably want a shell or some entity here.

As for the FBAR and FATCA filings, you may or may not have crossed this threshold, and whether you decide to report is probably best done with the consultations of a professional.

If you check out Talk Yankee (US expats living in the UK) they have a special section dealing with taxes and working. Some of them can recommend UK-based accountants with extensive experience in US tax issues affecting US citizens abroad. http://talk.uk-yankee.com

Last edited by penguinsix; Jul 1st 2012 at 6:01 am.
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Old Jul 1st 2012, 6:25 am
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Default Re: UK/USA Dual Citizen moving to California

Originally Posted by penguinsix View Post
And with the general rule is 'if you don't owe, you don't have to file' it results, basically, in that you probably aren't in any trouble for a lack of filing over the past few years.
I believe that, strictly speaking, you are supposed to file a return for any year in which your gross income exceeds the (fairly low) filing threshold even if you don't actually owe any taxes.

However, since the penalty for not filing is a percentage of the amount of tax owed, there is effectively no penalty for not filing if you don't owe anything.
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Old Jul 1st 2012, 1:28 pm
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Default Re: UK/USA Dual Citizen moving to California

Originally Posted by ian-mstm View Post
Besides, one must usually be resident in a state/city to be liable for such tax.
That's not necessarily correct. (ok, you qualified it by saying "usually")

When I worked in NYC and resided in NJ, I had to file 4 tax returns. Federal, NJ, NY and NYC. Taxes paid to NY/NYC would offset my tax obligation to NJ. NJ does the same thing, if you reside in NY and work in NJ, you need to file both a NJ and a NY return. I suspect other areas where it is common to reside in one state and work in another has similar rules.

And yes, I agree that this is a tangent to the initial discussion, but may be of general interest for anyone contemplating a move to the NY tri-state area.
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