FILE IN US OR UK?

Hello All,
Hope this doesnt confuse anyone, but i have been reading over the forum to see if there were any situations like ours but i didnt see any so here we go, okay, here is our situation: I am a USC and my husband is a UKC, we left the states on July 26th 2006 to come to the UK for what we thought was going to be indefinate, unfortunately we got homesick and are deciding to return home in March or April depending on money situations. So according to what i have read, We dont meet the time requirements for foreign income exclusion, I didnt work at all in the states from January 2006 until July of 2006, but did work in the UK as soon as i got here (spousal Visa) from august and still working until we get back to the states. Up to now there has been NI payments but no tax taken out because you have to earn over £5,300 and havent been here the whole tax year anyways. So after all of that can i just have my mom prepare our taxes using turbo tax and possibly get EIC ? or do i have to wait and do all of this in march or april when we get back to the states? I hope i havent confused anyone, Unfortunately we havent made together any amounts close to taxable. Can someone help or advise?

Thanks,

Bex and Kurt

You will have to file a UK tax return for your UK income.  You will also have to report your UK income in the US.  File for an extension so that you have time to complete the UK return before you complete the US one.

First, compute your UK income and the tax on the income.  You may have been over- or under-withheld, as your intentions upon your arrival were different to what actually happened.  You may wish to seek a specialist UK tax preparer to reduce the time and effort involved in getting this right the first time, since the answer you come up with affects your US return.

Now that you have your actual UK tax due, you can compute your US tax return.  Include income earned between July 06 - Dec 06 (you can use your Dec paystub).  Then take the tax withheld through Dec, adjusted for any refund you receive.  Do not adjust for any balance due, as the balance due applies to the US 2007 tax year.  If you are comfortable, you can do this on Turbotax; otherwise, seek a US tax accountant with experience in offshore income.

There are cheaper accountants out there who specialize in lower-income tax returns.  You may want to try www.taxlogic.com for this.  I do NOT recommend www.taxlogic.com for anyone whose annual income is >$80,000 or who has foreign investments (including foreign pensions).

awesome thanks for responding so quickly although one small thing, i still have had no tax taken out yet as i am still a ways away from reaching the £5,000 mark before tax is withheld..does this make a difference ...

You've got three more months before the end of the UK tax year - it ends 5 April 2007.  So you may go over by then.

If your UK income is under the 2006/7 threashold, you do not need to file a UK tax return.  The threashold for 2006/7 is £5,035.

In addition to tax for you (the US citizen) don't forget that your husband (as a UK citizen) should have claimed UK child benefit and UK child tax credits and working family tax credits.  These are:
a) not usually backdated more than 13 weeks, and
b) independent of the US EIC so you may get both

When you come to file taxes don't forget to deduct all of your moving costs even if you don't get the  $80,000 exclusion

hi guya,
sorry im a bit confused these are his stepchildren and i thought we couldnt claim any kind of child benefits of any kind as long as i have no recourse to public funds? or am i confused? Also we just arrived in july of 2006 dont you have to be here years to even claim any kind of a benefit (like once you are a dual citizen and the ban is lifted from no recourse)? If i am wrong then how would my husband go about checking into these credits or where would he start.?

Entitlement to Tax Credits (usually paid directly to a UK bank account unlike in the US where they are usually claimed on a tax return) exists where the claimant meets this residence test:  (from: http://www.hmrc.gov.uk/manuals/tctmanual/TCTM02000.htm)

"The general rule is that to be treated as being in the United Kingdom for the purposes of CTC and WTC, a person must be both present and ordinarily resident here throughout the period of the award. For new claims on or after 1 May 2004 for the purposes of CTC, to be treated as being in the United Kingdom a person must also have a 'right to reside' in the United Kingdom."

If I understood correctly your husband is a UK citizen so has right to reside and you are ordinarily resident here.

Your husband would claim/enquire by telephoning here:
http://www.hmrc.gov.uk/manuals/tctmanual/TCTM01003.htm

To claim/enquire about child benefit your husband should phone here:
http://www.hmrc.gov.uk/childbenefit/contactus.htm

I do not know your circumstances in detail, but I wouldn't want you to miss out on money you are entitled too, or at least to find out for certain what you might get.

Entitlement to Tax Credits (usually paid directly to a UK bank accoun unlike in the US where they are usually claimed on a tax return) exists where the claimant meets this residence test:  (from: http://www.hmrc.gov.uk/manuals/tctmanual/TCTM02000.htm)

"The general rule is that to be treated as being in the United Kingdom for the purposes of CTC and WTC, a person must be both present and ordinarily resident here throughout the period of the award. For new claims on or after 1 May 2004 for the purposes of CTC, to be treated as being in the United Kingdom a person must also have a 'right to reside' in the United Kingdom."

If I understood correctly your husband is a UK citizen so has right to reside and you are ordinarily resident here.

Your husband would claim/enquire by telephoning here:
http://www.hmrc.gov.uk/manuals/tctmanual/TCTM01003.htm

To claim/enquire about child benefit your husband should phone here:
http://www.hmrc.gov.uk/childbenefit/contactus.htm

I do not know your circumstances in detail, but I wouldn't want you to miss out on money you are entitled too, or at least to find out for certain what you might get.

okay i will have to look into that but then bear in mind that my husband is only her step dad and not the real biological dad.
Thanks,
Bex

It may not matter - he is a UK national who has responsibility for children in his household.

Vicky

I worked in London for all of 2006, January thru December, and made £28K and paid £2375 EES NI and £3050 ERS NI and £5049 in tax.  I'm back in the States about to begin work again.  Do I file in the US for my UK income and will I have to pay?  I appreciate any help offered.

I worked in London for all of 2006, January thru December, and made £28K and paid £2375 EES NI and £3050 ERS NI and £5049 in tax.  I'm back in the States about to begin work again.  Do I file in the US for my UK income and will I have to pay?  I appreciate any help offered.

You need to file in the US but likely will not have to pay as it is under the income exclusion allowance.

More importantly, you need to file in the UK.  From what you said, it appears you have overpaid your UK taxes.  If I simplistically assume you made £7,000 in the first 3 months and £21,000 in the second nine months (£28,000 total) than your taxes should be:

2005-2006 UK Tax Year
£4,895 untaxed (personal allowance)
£2,090 at 10% tax rate
£15 at 22% tax rate
Therefore tax is £212 (.10*2090+.22*15)

2006-2007 UK Tax Year
£5,035 untaxed (personal allowance)
£2,150 at 10% tax rate
£13,815 at 22% tax rate
Therefore tax is £3254 (.10*2150+.22*13,815)

So your total inland revenue tax should be £3,467; they owe you £1,582.

It also looks like you've been overtaxed on NI but I haven't done that calc.

Again, this is a simplified look at it so my numbers wont be 100% accurate, but I'd say they very likely owe you £££.  You'd have to consider other UK income such as interest earned in bank accounts, etc.

There is no guarantee that the UK personal allowance is due because non-UK residents who are only US citizens are not entitled to a UK personal allowance.  We do not know the original expectation of length of stay as this will be key.