dunroving

I thought the nature of the tax treaty was to avoid paying double taxation to two countries? I'm wondering whether you are supposed to pay tax regardless of whether it is in the UK or US... in other words, if you are not paying income tax as a US resident, don't you have to pay income tax in the UK?

sibsie

I'm crap at all this stuff which is why I have an accountant (I'm freelance so not PAYE)

When I moved to Spain it was explained to me that you can't elect where you pay tax, it's based on your residence. The double taxation treaty is to avoid you being taxed for US earnings in the UK and vice versa. Living in a different country is not a tax avoidance loophole. You have to pay your tax somewhere.

EG., I have an income that's tax free in the UK. When I move to the US it becomes taxable but I can claim back the money from the Inland revenue.

avocadinho

double taxation is just one aspect of the tax treaty.

Because I'm in full-time employment in the US, have been for absent for an entire tax-year, and have not spent more than an average of 183 days in the UK in any given tax year, I'm a non-resident (for tax purposes) of the UK, so don't have to pay UK tax.

My situation relates to a completely different aspect of the treaty that applies only to "A professor or teacher who is a resident of the United Kingdom on the date of arrival in the United States and who is in the United States for not longer than 2 years primarily to teach or engage in research at a university, college, or other recognized educational institution"

I happily took my first job for a (as it turns out) company called Oak Ridge Associated Universities, which, in-fact, is not a 'university' or even an 'educational institution'. After coughing up several grand for taxes I wasn't expecting to pay, I quit and took a new position at U. of Chicago...so now the treaty applies...you see how complicated my life has become!!... :scared:

Pulaski

I'd be very surprised if it is possible for you to "disappear" for tax purposes (except if you move to the Carribbean, Monaco, or some such place) by moving between the US and the UK. I think that you'll find, sooner or later, that you do have to pay taxes somewhere..

Think about it, .... you are claiming exemption from UK taxes because you are no l onger UK resident, but you seem to be claiming that you have done so without taking up residence (for tax purposes) in another country. My gut feeling is that if you are exempt from US income tax then you are (still) liable for UK income tax.

sibsie

I really think you need to take professional advice on this one. If it was that easy then we'd all be teaching and none of us would be paying taxes.

avocadinho

Well, it only works for two years so it's not really worth taking a measly teaching job for. BTW it seems clear that is I linger in the US for one day longer than 2 years, I have to pay the whole wodge of taxes in one go...plus fees and interest.

Pulaski does have a point that it looks like a tax dodge, I can only suggest that the original treaty was meant as 'relief' to encourage educational exchange. It's not like academics get much money anyway! I will have a look at what the inland revenue says on the subject though.

dunroving

I have to agree. I don't think there's any free lunch to be had in this situation.

I was a "nonresident for tax purposes" in the US from 1990 to 1997. That didn't mean I didn't have to pay US taxes. It meant that I had to file a 1040-NR, and that I had to (interestingly) pay MORE taxes than a US resident (i.e., resident for tax purposes). There was something like a flat $30 per month extra tax I had to pay.

The fact that we're all guessing here just reinforces the fact that this situation requires the services of a properly qualified tax expert - even if that does mean thay are going to tell you that you should be paying taxes (somewhere - either US or UK). Either that or risk getting into trouble at some point for not paying taxes that you should have paid. Don't screw with the IRS - from everything I've read, when they decide you're trying to screw them over, they have extremely wide-ranging powers to come after you.

Franklin

My understanding is that those on J1s and who do not go beyond 2 years in the USA (just one day beyond two years will "do it") there are no taxes owed to the IRS, post-docs are well known for getting this tax break. But if the post-doc stays just one day over the 2 year limit, the post-doc is liable to pay taxes on all two years of previously tax free salary. But I agree, get the advice of a tax consultant or contact the IRS for their advice.

acer rose

As has been pointed out already, this treaty is not quite the same as the double taxation treaty but probably stems from the same sort of rationale. I suspect the US/UK arrangement arises due to the different starts of the tax year (January/April) and the time of year at which courses and academic and teaching jobs usually start (August/September/October).

There are different rules on residency for the Inland Revenue and the IRS which means that there may be a loophole for a few lucky individuals depending on when they arrive and depart from the US, if they are included in this two year exemption which is occupation AND visa specific and is not extended to spouses and kids who may be working.

The UK does not tax its citizens and permanent residents based on worldwide income if you are non-resident and not ordinarily resident in a full particular tax year. If the Inland Revenue decide you are non-resident and not ordinarily resident in the UK, you only pay UK income tax on UK generated income (such as house rental income, savings account interest etc) whilst abroad. Hence, whether you live in the Gulf States, the Antarctic, Jersey, Guernsey, the USA or wherever, you don't pay UK tax on your income arising from outside the UK until you once again become resident in the UK. The Inland Revenue assume that the tax will be paid acording to the rules and laws of the state in which you are resident. The UK self-assessment tax return form has clear questions relating to this issue in order for them to assess your situation by their rules.

If the IRS decide you are non-resident, you pay tax only on income arising in the USA (and pay more than a resident) not on worldwide income, unless you are subject to the above mentioned tax treaty. However, if you do stay even one day (and this is by dates so it could even be an hour!) over the two years, you get to pay all the tax, plus the interest and fines, to the IRS.

I am not sure how long you have to stay out of the USA after your two years to avoid having to pay back the tax. You need to check that out if you are ever intending to go back to the US to work.

I guess the trouble really starts when the IRS (not the INS!) consider you a resident as you then have to prove that you are not just trying to avoid paying tax in order not to be assessed by the IRS on your worldwide income for the rest of your natural. So if you leave the US for a tax haven, you will still get clobbered for US income tax until you can prove you have closer ties (ie are paying tax there, have a home there and will not be returning to the USA) to your new location, even if you are not a US citizen or Green Card holder.

SamuearlJackson

i am in the same situation as this and my university recently had a tax expert come in and talk about tax returns.

my situation:

arrived USA october 2003 as a post-doc on a J1 visa (was a student previously so no tax in UK).

paid 30% tax on wages from uni as i didn't have my SSN until recently (this is a completely different story that it took over 4 months from filing to receive my SSN). i now want to claim back the 30% from the IRS (obviously) as i am not supposed to pay any US tax for 2 years as a post-doc. as far as i'm aware this is a 2 year tax break for post-docs as i am not classed as a resident for UK tax purposes. you have to file form 8843 to claim non-resident status and form 1040 NR-EZ (or NR) to claim back a refund if you are entitled to any. as previously said, if i stay one day over 2 years in the USA then i am liable to pay the tax on all of my earnings in the last 2 years.

i phoned the IRS yesterday for clarification on what information i need to include on the 1040 NR-EZ form to apply the tax treaty, and they should be getting back to me within the next 3 working days. will update when they reply.

J2 visa holders must file form 8843 even if they did not have any earnings in 2003.

hope this helps some people,

SamJ

Ben

The fact that you are enquiring about taxes to do with the US/UK treaty, personally I would speak to the Inland Revenue in the UK. When we moved here and did are first tax return, the UK were a fantastic help and knew a lot more than any accountant we managed to get hold of here. And their help is free.

If they really can't help, have you tried talking to someone in your college. surely this must have happened to someone else before you. As the previous person has just mentioned, they may have someone come in especially for this time of year.

helenmaine

We are also in this situation - away from the UK for 2 years and therefore 'non resident' but not returning (actually going to Oz), so will be in the US forless than 2 years We elected to pay tax because originalkly we were going to stary more than 2 years (the cut off point for this research/academic arrangement)

So, we don't know whether we are entitled to the no-tax rule and can claim back tax or not. All v. complicated.... It seems from some of these posts that we might not be liable for the tax but other seem to suggest that we are. Good job we are seeing an accountant next week....

Vicky88

We have used H&R Block Premium for the past 5 years and they have been great. They are totally different from the bods at the corner store trading under the H&R Block name.

I started doing the H&R Blcok 6-week tax course and quit after the first week because the first class of 3 hours basically consisted of helping these idiots work out where on the form you put the name and SSN.

SamuearlJackson

just to update you...the IRS phoned me on Monday and said that I should quote "Article 20, paragraph 1" on form 1040 NR-EZ to invoke the UK tax treaty. This is for researchers/teachers who have been in the USA for less than 2 years.

i will be doing the tax return by myself as i feel fairly comfortable with what i have to do after listening to the advice of the expert that my university had come in to talk.

SamJ

helenmaine

Just wanted to share our recent experience with this. I have been here 23 months on a J1 visa and will be leaving before 2 years. Although I elected not to sign the treaty (and therefore have been paying tax) we saw the university accountant last night and he has put in a claim to get back all the tax, becasue we are eligible. It remains to be seen if they will query the claim, but according to him, it is all legit.
Also, apparently you have up to 3 years to claim back the tax that you have paid.

He also said that the 2 year limit only applies if you wanted to come back on a J1 visa again, so it would seem that if you wanted to work in the US again on a different visa then this would be OK.

We also spoke to our accountant in the UK and we are non-resident there for tax purposes.