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US Tax liable on UK earnings?

US Tax liable on UK earnings?

Old Mar 8th 2007, 1:39 pm
  #1  
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Default US Tax liable on UK earnings?

Does anyone know if there is any risk of US tax liability for UK earnings in this example;
If I move to the US in June but have earned income as an employee in the UK from Jan - May? I will therefore be starting work in the US from June 1st. I asume that I will only have to pay tax on the period when I am resident in the US?
Thanks, Tony.
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Old Mar 8th 2007, 3:08 pm
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Default Re: US Tax liable on UK earnings?

You can file what is called a "dual status" tax return, which is actually two tax returns stapled together: a "non-resident" return for the portion of the year you were in the UK (where you only pay US tax on US-source income), and a "resident" return for the rest of the year, in which you pay tax on worldwide income.
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Old Mar 9th 2007, 9:13 am
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Default Re: US Tax liable on UK earnings?

Thanks for the reply rew1000. That makes sense. I should have tax filing assistance for my first year through my employer so it should be failry smooth process. reason for the post was that I had a horrible thought that I may have an unexpected US tax bill at the end of the year.....
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Old Mar 9th 2007, 12:17 pm
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Default Re: US Tax liable on UK earnings?

rew1000's advice is valid, but a bad idea.

Filing dual-status tax severely restricts the exemptions and deductions that you can claim for your US tax.

You're generally much better off filing as a US resident for tax purposes (if you meet the 180-day Substantial Presence Test) and claiming Foreign Earned Income exemption for the earnings (up to $70k last time I looked nearly 4 years ago) in the UK.

This gets into complicated tax ground, so you should consider getting a real CPA with expat tax experience to prepare your return. Don't use H&R Block or any of the other highstreet tax companies.

All the information you need is actually on the IRS website, and I've found it to be very, very much better than the Inland Revenue information.

The broad answer to your question, though, is that you should never be taxed twice on income in the UK, since there is a tax treaty between the two countries.
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Old Mar 9th 2007, 4:31 pm
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Default Re: US Tax liable on UK earnings?

Originally Posted by dbj1000 View Post
You're generally much better off filing as a US resident for tax purposes (if you meet the 180-day Substantial Presence Test) and claiming Foreign Earned Income exemption for the earnings (up to $70k last time I looked nearly 4 years ago) in the UK.
It's $80K these days, or $160K if married, filing jointly.
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Old Mar 9th 2007, 5:40 pm
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Default Re: US Tax liable on UK earnings?

You will only qualify for foreign earned income exclusion if you live more than 183 days in a foreign country or your tax home is in the foreign country at the time of filing US income tax return. Mostly, its for US citizen or resident working abroad.

If your UK income is not very high and if filing full year resident will not bump your income tax to more than $65,000 ,You might be off better filing as full year resident and claim foreign tax credit.
But if your Uk income is very high and its not connected to any US business,you might want to file as dual status. But dual status resident is not allowed to claim standard , you should itemize all your deductions.
You might be better off consult an accountant for the first year filing.
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Old Mar 9th 2007, 6:03 pm
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Default Re: US Tax liable on UK earnings?

I had the same issue when I moved here in 2003. I think there are (were) 3 ways of doing it. My only suggestion is that you go through each and find out the way that will get you the most money back as each has different rules about how to file and what you can claim.


When we worked it out, two of the ways would end up with us owing the IRS money. The third way ended up with the IRS having to pay back some taxes to us.
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Old Mar 9th 2007, 6:16 pm
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Default Re: US Tax liable on UK earnings?

Originally Posted by dbj1000 View Post
rew1000's advice is valid, but a bad idea.

Filing dual-status tax severely restricts the exemptions and deductions that you can claim for your US tax.
You live and learn! I would just echo what others have said that it's complicated and there can be multiple answers to the same situation. A lot can depend on when in the tax year you arrive as well. My experience is that the IRS website is excellent, the phone/walk-in service is lousy - I found the opposite to be true with the Inland Revenue.

Overall, the UK-US tax treaty should mean that worst case scenario is the higher of the two countries tax. Best case scenario could be significantly less.

If you end up paying someone a reasonable amount of tax, not a lot is going to happen if you don't get everything perfect.
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Old Mar 10th 2007, 8:13 am
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Default Re: US Tax liable on UK earnings?

Thanks to all for the good advice folks. Like I said earlier, for my first year I will get tax filing assistance (KPMG) so they should be able to figure out which option is the best way to file. I will make sure they know the full story but their questionairre is very comprehensive and designed for expats anyway.
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