A question for those of you in the UK on a work permit

I work with two guys from the states, both are here on work permits. One of the guys was told by a tax person at the Embassy that US citizens are not allowed to be in the states for more than 30 days a year without possibly being taxed?

Any insight would be appreciated on the restrictions of being in and out of the US if you are in the UK on a work permit would be appreciated. 

TIA!

What your co-worker said is all a bit muddled...

There is a foreign earned income credit, which I think is what the one gentleman is talking about.  That would mean, once effective, up to $80,000 a year of income would be exempt from tax.  A person has to be not working in the US for > 330 days during a 12 month period.  They technically can be "in" the US as long as they are not working and earning income.  Then once the 12 month period is met, the portion of that 12 months that falls in the tax year can claim the foreign earned income credit.

For example, a US citizen (or green card holder) is out of the country from July 1, 2006 until June 30, 2007, for the 2006 tax year, they could claim $40,000 of exemption and in 2007 claim $40,000 of exemption.

There are two ways of proving this, there is the physical presence test and the foreign residence test.

Thanks Kitsonk!

Yes it was a bit muddled. It was brought up about a month ago and they keep talking about it and asking me...of course I didn't know anything about work permit implications. I have passed your info along!

In 2004 a very draconian tax law was passed that has hosed expats royally.  The bits that got all the attention were the reduction in income subject to tax credits, but one other nasty aspect is the requirement that expats NOT be present in the US for more than 30 days in any given year for the next ten years after they expatriate, else they fall back under US taxes, even for things like inheritence tax.

That is probably what that person is referring to, and yes, the laws have been changed in ways that are very unfavorable, and very unfair, to anyone wishing to emigrate.  When discussing this with my co-workers, I have likened it to a "fiancial Berlin wall" which, whether or not it was deliberately designed that way, has the effect of financially trapping most people in the US, unless an employer is sending them abroad.  In short, we're free to move about the world at the behest (and expense) of our corporate masters, but any individual wishing to do so on their own better watch their step (and move out in January)!  I'm still trying to find a good US/UK tax advisor, as this is all about to bite me and my wife when we expatriate next week (and we don't even know if we're going for 1 or 2 years, or longer).

That tax thing is a nightmare, regardless.

Jean - smile! Tax is NOT the reason you are moving.

"Expatriate" means renouncing US citizenship.  The expatriation rules - including the 30 day limit you mention - only apply to those who renounce US citizenship,  seeing that you only plan on coming to the UK for 1-2 years I don't suppose this is you?

Ever since the 16th amendment was ratified in 1913 all US citizens have been taxable on worldwide income for ever - but you are able to claim the (now) $80,000 foreign earned income exclusion plus the (now reduced) foreign housing cost exclusion and credit for UK taxes.

You can probably save several thousand dollars by getting the UK and indeed US tax reduced by planning properly.  If you PM me I may be able to point you towards help.

Kind regards

"Expatriate" means renouncing US citizenship.  The expatriation rules - including the 30 day limit you mention - only apply to those who renounce US citizenship,

Ummm, are you sure? I've always understood an Expatriot to be someone who lives in a country other than that they are a citizen of. To renounce one's citizenship requires formal action and paperwork from what I understand. I believe expatriating and renouncing citizenship are two completely different things.

A person wishing to renounce his or her U.S. citizenship must voluntarily and with intent to relinquish U.S. citizenship:

   1. appear in person before a U.S. consular or diplomatic officer,
   2. in a foreign country (normally at a U.S. Embassy or Consulate); and
   3. sign an oath of renunciation

Sourcehttp://travel.state.gov/law/citizenship/citizenship_776.html

In this situation expatriation refers to someone who has renounced their US citizenship or long-term residents who have ended their residency. 

http://www.irs.gov/publications/p519/ch04.html#d0e3976

Again, people getting muddled...

A lot of Americans think they are not taxed on global income, but they are.  I would assume that 99% of the people facing this situation are not giving up their American citizenship.  A lot of people get confused on the whole issue, which is why I told Jules what I did, because what I said applies to the vast majority of Americans who do not give up their citizenship.  There are still a good many people who assume they lose their US citizenship as soon as they gain another, which again is totally wrong.

While "expatriate" literally means to be stripped of your citizenship, it has come to be referred to colloquially as someone who is not living in their country of citizenship and is defined as both these days.  Guya is fully technically right though. http://dictionary.reference.com/search?q=Expatriate

Those who denounce their citizenship and those that have green cards and leave the country (long term residents) are subject to what guya and geetak are referring to.  I doubt very few American citizens denounce their citizenship, and I don't know, but maybe Jules can inform us what her co-workers were referring to.