Temporarily worked in UK, under $80k -- which forms?

I would appreciate if anyone could point me in the right direction regarding my US income tax filing.

I am a dual UK/US citizen.  In 2004, I worked 7 months in the US and 5 months in the UK.  In 2005, I plan to work 4 months in the UK and the rest in the US.

I earned under the $80k limit working for a UK company and I paid normal UK income tax and NHS deductions.  I file as single with no dependents and have no other sources of income.

Since I have not lived in the UK for at least one year, I then assume I do not pass the "bona fide residence" nor the "physical presense" tests.

Is anyone in a similar situation?  Do you know what forms I need?  Can you point me in the direction of other threads or links that may help to untangle the complexity?

Many thanks.

I can't answer your question but I was thinking of you just the other day and wondering what you were up to.   

Hi Peedal.  I pop in every now and then, but don't have time to post very often.  Nice to know some ppl still remember me. 

I'm in the same boat for 2004, worked 8 months in the US, 4 months in the UK, but since my UK salary was under $80000, and I have not passed the "physical preference test" (which I think is one calendar year in the UK), I assume I would have to pay US tax on my 4 months UK salary.  I hope I am wrong as I don't want to pay tax twice.

bvamin

Yeah, exactly.  There is a tax treaty between the US and UK.  We've already paid taxes on this income.  Are we to be penalized because we did not work a full year?

No neither of you will be penalized....I worked 6 months in the US and 6 months in the UK in 2003 so I was pretty much in the same situation for that tax year.  There is another "test" aside from physical presence but can't remember what it is, that I qualified for. I have a publication at work for expats (can't remember the pub #) but I will post it tomorrow. It explains the forms that you need to use aside from your 1040 form.

Julie

Go to the IRS webiste.  [url][/IRS.govurl] and download Publication 54 Tax Guide for US Citizens and Resident Aliens Abroad.  I just looked up the physical presence test and that was what I qualified for. The other is the bonafied resident test. 

Julie

On the other side of the coin, if you don't qualify to use Form 2555 for the $80,000 exclusion you might be able to use Form 1116 and take a foreign tax credit offset against the amount of taxes assessed on your 1040.

You can also file an extension until you fulfill one of the two reasons for the $80,000 thing...I'll see if I can find the info the school gave me (at home) and post it.

I would not qualify for either the "bona fide residence" nor the "physical presence" tests.  I believe the bona fide residence test is if you are in the foreign country for the entire tax year, whereas the physical presence test is 330 days split across tax years (in which case a filing extension may be the answer).

Here is the bit from Pub 54 which talks about it: http://www.irs.gov/publications/p54/ch04.html#d0e2728 [nofollow]

As canys_girl suggested, I think Form 1116 (Foreign Tax Credit) is the answer.  This link talks about it: http://www.irs.gov/publications/p514/ar02.html [nofollow]

Presumably the UK income tax I paid on my UK income will be at a higher rate than the US would tax the UK income, so using the tax credit, I would not need to pay any additional taxes on the income.

Any more thoughts or advice would be greatly appreciated.

 

Here is something I found on a thread from last year that may be of help.  Julie

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Re: Bona fide resident vs. physical presence test
« Reply #3 on: April 15, 2004, 07:01:48 PM »   

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When I looked into this, it seemed that expats could actually extend their filing deadline to a date that is 12 months after their move so that they would qualify for a full year of residency!  The extension form allows you to fill in a specific date of your choosing.

Here we go, I found it:

You can get an extension of more than 6 months to file your tax return if you need the time to meet either the bona fide residence test or the physical presence test to qualify for either the foreign earned income exclusion or the foreign housing exclusion or deduction. The tests, the exclusions, and the deduction are explained in chapter 4.

 You should request an extension if all three of the following apply.

  1. You are a U.S. citizen or resident.
  2. You expect to meet either the bona fide residence test or the physical presence test, but not until after your tax return is due.
  3. Your tax home is in a foreign country (or countries) throughout your period of bona fide residence or physical presence, whichever applies.

 If you are granted an extension, it generally will be to 30 days beyond the date on which you can reasonably expect to qualify under either the bona fide residence test or the physical presence test. However, if you have moving expenses that are for services performed in 2 years, you may be granted an extension to 90 days beyond the close of the year following the year of first arrival in the foreign country.

http://www.irs.gov/publications/p54/ch01.html#d0e560

The form for this is 2350

Yup - that's it...and it's going to be what I'll do...I arrived to work in August and won't actually file until late September...but I will file an extension request!

So just repeat with my example, I started working in the UK in July and will make beyond the 80K on a pro-rata basis for the year, but I should file an extension request(for 2350) to the IRS to extend until next July, at which point the first 80K of my income is exempted?

And the remaining portion after 80K, I'll have to file for but including the foreign income tax credit I'll be given(presumably at  a higher rate) will make it so I'm paid in full?

Adrian