Dual US/UK expat in UK and parttime US working

I hope the subject line is not too cryptic.

Basically, I am a dual US/UK citizen (originally from the US) based in London. My employer is asking me to take on a job the duties of which include a significant (say, 1 week per month) amount of time working in our New York office.

Currently I fill out a US tax form but pay no tax as I make less than $80K per year. However, my question is this: even though I am domiciled in the UK, paid in sterling, and don't make $80K, how will spending 12 weeks per year working in New York change my tax status for the IRS?

Will I need to declare this income as US income and pay tax on it? Is there any legal way to ensure that it's considered as foreign income and thus under the $80K limit?

Thanks in advance for any assistance rendered.

Chris Hansen
www.hansenhome.demon.co.uk

Well, I've gotten an answer to my own question from a tax accountant. He says, basically, that I need to pay U.S. income taxes on any income earned while I am physically present in the U.S. Then, I need to deduct the amount of U.S. tax paid from my U.K. taxes.

I think this will be quite onerous, as well as robbing the Queen to pay the President.

I've still not informed my employer of this and I'm hoping that I can avoid working in the U.S. in order to keep my life simple.

Chris Hansen
www.hansenhome.demon.co.uk

Hi there

Your accountant is correct any US/NY business days that you have generates US source income which is then subject to Federal and NY State taxes. All is not lost as you can claim the tax you pay on this income to the US on your US return thereby avoiding double taxation.

Once your US and UK tax returns are completed your effective tax rate on the combination of both returns should be the same as that country which has the higher tax rate.

Helen

Another possible way of doing this was told to me by another US expat who works in my office and often spends working time in the United States. He uses Form 1116 (Foreign Tax Credit) to credit the U.K. taxes he paid on his income against any tax he might owe on his U.S.-source income. This way, the U.S. wouldn't get any of my money as before I paid U.S. tax on the income I would be offsetting the U.K. tax I paid and thus have no tax liability to the U.S.

Is this also a permissible way to handle the tax situation? My co-worker tells me it takes him two days to fill out Form 1116, so that's more onerous. However, if it means I don't have to pay U.S. taxes and then claim it back from the U.K. that would be a plus.

Does a similar foreign tax credit exist for the New York State and City income tax?

Chris Hansen
www.hansenhome.demon.co.uk

You CANNOT take a credit for UK taxes paid on your US return again US source income.  This credit is available ONLY against foreign source income thereby avoiding double taxation.

What IS available is a credit on your UK return for the US taxes that you will be paying on your US source income provided that this is being taxed in the UK also.  This way you avoid double taxation, AND pay the right tax to the right government.

I hope this helps clear things a bit more. Let me know if not....

Helen