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Discussion Starter · #1 ·
My husband and I are moving to Florida at the end of the year with his work. I am giving up my job to go.

My UK employer has asked if I would work remotely for the UK company from the US for 1-2 months to aid the transition of my work. I would remain on the UK payroll so pay PAYE tax in the UK.

We have sought tax advice around what this would mean in the US. We have been told that because I would physically be in the US any income would be US income and not "foreign income" and that I would have to declare the income and pay tax on it in the UK.

My question is, if I have to pay tax on the income in the US as I will have already paid tax in the UK on this income can I reclaim the tax paid in the UK and if so how? If anyone can offer any advice, or perhaps has experience of how this would work, I would be very grateful.
 

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Discussion Starter · #3 ·
I believe its called L2.

The US parts are all fine. We've taken tax advice in the US from Kpmg. The part I am still trying to understand is how or whether I can get back the tax that I will pay at source in them.

My understanding is that you shouldn't pay tax on the same income twice(in the UK and US). But I don't know how together the tax that will have been taken out of my salary in the Uk back.
 

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The "correct" way to handle the situation would be for your UK employer to pay you as a vendor rather than as an employee. You would then report your foreign income on your US taxes and pay income tax and social security to the IRS rather than to the UK tax service.

I suppose you could take a "foreign tax credit" for your PAYE (using a form 1116) against any US tax liability for the amounts. But you would lose any social insurances or any other form of tax being withheld from your pay in the UK. This could, however, come back to bite you as you really are supposed to be paying income tax on all income earned while you are resident in the US. If you can, you may want to run it by KPMG to see what they think.
Cheers,
Bev
 

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Let's take these issues one by one....

1. Visa. You must have work permission in the U.S. for any restricted employment activity (which is most things called "work"). I'm assuming your husband is a U.S. citizen and he's sponsoring you for a CR-1, in which case that should be fine. There are a few permitted activities without a visa. For example, if your U.K. employer sends you to attend (not teach) a 1 to 2 month training class in the U.S., that activity ordinarily doesn't require a visa. This distinction gets potentially more important in a moment.

2. Florida has no state income tax, so there's no Florida tax on income from your U.K. employer.

3. You might be able to avoid U.S. tax (filing) on that income but only in very narrow circumstances, and only if the timing of your move and amount of income put you below U.S. filing thresholds. (Probably not, actually, especially if you want to file a joint U.S. tax return with your husband, which you probably should.) Here are a couple examples:

(a) You're attending a training class, as mentioned. Your U.K. employer can send you to the U.S. for a short training class without U.S. tax consequences in and of themselves. (Though once you're a U.S. resident you start U.S. tax filing anyway.)

(b) Your U.K. employer pays you a severance package before you leave the U.K. equivalent to those 1 to 2 months of salary (or more). In that case it's U.K. income, taxable first in the U.K. (and according to the U.K.-U.S. tax treaty) per normal. Again, U.S. residence causes U.S. tax filing. But, for example, if your U.K. employer pays your severance on December 15, 2013, and you move to the U.S. on January 2, 2014, ordinarily you wouldn't have a U.S. tax filing for tax year 2013 and so that U.K. income is in the past for U.S. purposes.

4. In general, though, you'll pay U.S. tax first on that income. Which is OK -- I'm going to disagree a little with Bev on trying to do anything like a contract worker arrangement for 1 to 2 months. The way it would work is that you'd file a U.S. tax return and include that income (which you'd probably have to do anyway depending on when you move and how much income it is), probably on a joint return with your husband. You'd pay U.S. tax, if any. When you file your U.K. taxes you'd report the U.S. tax paid on that income, and that would offset your U.K. taxes. You'd then get a U.K. tax refund, most probably. But you'd also check the U.S.-U.K. tax treaty to see if it says anything different.

5. With respect to social insurance, you'd pay U.K. national insurance on that income, not U.S. Social Security. (This is the primary reason I disagree with Bev -- there's no point in paying U.S. Social Security and Medicare on that income for just 1 to 2 months. Too much bother to switch to a U.S. self-employment payroll tax and not worth it.) That income is covered by the U.K.-U.S. Social Security treaty, and I think you're on firm footing there in paying only the U.K. system per normal.
 

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I'd just be careful on points 4 and 5 of BBCWatcher's advice. He may have more knowledge of the UK tax system than I do (which isn't difficult) but it's not always the case that you can simply deduct taxes paid to another country. (I know it's not the case here in France - they have another mechanism for handling the double taxation issue.) Plus, from what little I do know about UK taxes, if your tax liability is met through PAYE I don't believe you ever file any sort of UK return - so you do risk being double taxed. Point is, check this aspect out before you agree to anything. (And with a tax adviser on both sides of the pond. Someone from the UK tax office may tell you one thing, whereas your local tax office - US or French - sees the matter entirely differently. And you're the one stuck in the middle.)

On the social insurance issue, again, you don't normally get to choose which system you pay into. Plus, if you have any thoughts of remaining in the US for the longer term, it wouldn't hurt to get yourself established in the US SS system. But get the larger tax issue resolved first.
Cheers,
Bev
 

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On the social insurance issue, again, you don't normally get to choose which system you pay into.
True, but the treaty decides and makes this one easy: the U.K. system. In this case it's a U.K. employer "sending" the employee to the U.S. to work for 5 years or less (actually only 1 or 2 months).

Plus, if you have any thoughts of remaining in the US for the longer term, it wouldn't hurt to get yourself established in the US SS system.
Two months is very unlikely to make a difference in either U.S. Social Security eligibility or retirement benefit levels. There's a stronger argument for getting onto U.S. Social Security disability coverage as quickly as possible especially if one doesn't have good disability insurance. However, as you say, which particular system you're on isn't a choice. (See above.)

As for the U.K.-U.S. tax, there's no risk of double taxation. First you check the U.K.-U.S. tax treaty to see who should collect the tax on that 1 or 2 months of income from a U.K. employer while living in the U.S. If it's the U.S., then U.S. tax paid is credited against the U.K. tax withheld/paid via the U.K. Foreign Tax Credit Relief or via a treaty claim. Either way, if you owe U.S. tax on that income you'll get a refund from the U.K. if/when you file for it. No worries there.

If the tax treaty says the U.S. should get paid then you can ask your U.K. employer to suspend U.K. income tax withholding for that period of time. It may not be possible to do that, but you can ask.
 

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In any event, I would try to work out all the details of who is going to suspect taxation and in what manner before heading for the US.

Normally, don't you have to declare your departure from the UK so that you'll be treated as "non-resident"? Not sure how that process affects your situation.

For just a month or two, there is also the option of just declaring the income (or not) and seeing what happens. If it's not a large sum of money, it may never get a second look and may have only a limited effect on your US taxes. (If your employer is providing tax assistance for your first year or two, let KPMG or whoever is doing the tax assistance know about the situation - before you move - and let them decide how to handle it when they do your tax prep in the US.)
Cheers,
Bev
 
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