Double Taxation on US Wages?

Hello all,

I have spent the entire morning/afternoon on the phone to HMRC and navigating my Self-Assessment online and I am rather worried about whether I am doing any of it right at all! Any help would be SO appreciated.

I moved to the UK August 3rd, 2011 on a spousal visa. Since living in the UK, I have continued a small, part-time employment remotely with my previous US company doing some marketing things for them for 16 hours/week. These wages are paid in USD into my US bank account.

I wanted to be above board so I contacted HMRC this summer asking about whether I need to file in the UK. They said they would sent me the info for a SA form (which I only received in December, go figure) to check. I am now concerned I am going to end up paying a huge sum of money on these minimal wages and be doubly taxed due to being resident in the UK whist completing the work.

Basically, my W-2 is for the calendar year of 2011 (Jan 1st- Dec 31st) and total income for that period is a measly $12,560. Total tax withheld is $1,836.26. But if I calculate at 20% taxation rate (the going UK rate, if I am not mistaken?) that means they will want an excess of $675.74!? (meaning total wages times 20%, then subtract US wages already paid). Is this correct?

Now, I was only resident in the UK for 8 months of their April-April tax year, so also how does that affect my filing? Do I just estimate? UGHHHH, I am trying to make sure I am honest and playing by all the rules, but this is SO CONFUSING!

If anyone has any insight, I would be eternally grateful!

As you did this work in the UK you must pay UK income tax on it. You will have to pay whatever the HMRC rate is in full and then use that as a tax credit against any US tax due. You should be able to reclaim any US tax withheld as a refund. The other issue you must consider is FICA and NI contributions. You should be paying NI on your UK wages.

You need to talk to your US company and get them to sort out how you are paid and taxed. They should be paying you in the UK and paying UK payroll taxes, or you should be a contractor and charging them for your work and you then dealing with taxation and NI as a self-employed person.

There is no double taxation. You do the work in the UK. It is subject to UK law. Presumably your employer has given you a UK employment contract and is giving you UK employment benefits such as paid holiday pay and the minimum wage.

There is zero US tax due when you qualify for the section 911 exclusion.

There is zero US tax due when you qualify for the section 911 exclusion.

How would the IRS look at using FEIE when the income appears on a W2 ??
I get the feeling the OP's US employer has no concept of the implications of employing a UK resident.

You should be paying NI on your UK wages.

Not since she is working for a us company. She gets a certificate of coverage and continues to pay us ss.

How would the IRS look at using FEIE when the income appears on a W2 ??
I get the feeling the OP's US employer has no concept of the implications of employing a UK resident.

The IRS doesn't care, it happens all the time.

The IRS doesn't care, it happens all the time.

OK so the OP has a fairly simple path then.

Get her employer to apply for a certificate of coverage from SSA. File a UK self assessment form to declare her gross income paid by the US company for work she performed in the UK, adjusting appropriately for the different tax years, and then claim the FEIE on her US taxes to exempt that income from US income taxes and claim the amount already withheld back as a refund.

Thank you all so much for replying!

I am going to preface this by saying I consider myself a very intelligent woman, but I am only 25 with VERY limited tax experience so I am going to lay it out there that I feel a bit overwhelmed and lost on navigating this subject (as much as it may make me look silly!) 

Is there any way you can explain what I need to do in a "Taxation from foreign country for dummies" kind of way? I have no idea of what any of they acronyms stand for nor their implications, and frankly my US employer probably won't have a clue either (I work for a small business handling their digital marketing).

I am going to try and go to a consultant tomorrow here in the UK, but I am concerned they won't be able to advise me on the US side so any more "spelling it out" for me you can manage would be a life saver!

Thank you all so much for replying!

I am going to preface this by saying I consider myself a very intelligent woman, but I am only 25 with VERY limited tax experience so I am going to lay it out there that I feel a bit overwhelmed and lost on navigating this subject (as much as it may make me look silly!) 

Is there any way you can explain what I need to do in a "Taxation from foreign country for dummies" kind of way? I have no idea of what any of they acronyms stand for nor their implications, and frankly my US employer probably won't have a clue either (I work for a small business handling their digital marketing).

I am going to try and go to a consultant tomorrow here in the UK, but I am concerned they won't be able to advise me on the US side so any more "spelling it out" for me you can manage would be a life saver!

It's good that you are seeking help early on and have actually thought about this stuff and your tax liabilities.

First off as you are living in the UK and did the work in the UK so you must pay UK income tax on your earned income. So you have to include the gross income your US company paid you on the UK self assessment form and pay UK tax on it. You can avoid US tax by claiming the Foreign Earned Income Exclusion (FEIE). This allows US non-residents to exclude around $95k of foreign earned income from US taxes. You are well within that limit and when you do your 1040 you will exclude your income from US taxes and get the amount already withheld as a refund.

To make sure you are ok wrt payroll taxes ie FICA and NI you can use the US/UK SS Agreement to exclude you from having to pay NI on your earings from your US employer by obtaining a Certificate of Coverage

http://www.ssa.gov/international/Agreement_Pamphlets/uk.html#certificate2

Thanks Nun! Not only for replying again, but for making me feel comfortable asking for help 

So is there a reason that HMRC told me to fill in my wages AND the taxes already taken out in the US and then calibrate the difference, so to speak, by using the Foreign Tax Credit Relief calculator?

Is there a reason that one option would be preferable to the other, or is the route you described the most appropriate, affordable and more importantly above-board way to go?

So is there a reason that HMRC told me to fill in my wages AND the taxes already taken out in the US and then calibrate the difference, so to speak, by using the Foreign Tax Credit Relief calculator?

Is there a reason that one option would be preferable to the other, or is the route you described the most appropriate, affordable and more importantly above-board way to go?

How you claim foreign tax credits depends on the type of income and the tax treaty. I think strictly speaking that HMRC is not obligated to give you credit for US tax paid on income you earned in the UK. They might do so, but Sara and Guya are the people to confirm this.

I wish life was easy but it is not. HMRC give wrong advice because the contact centre people are not trained on tax law.

The employment income is taxable in the UK. The employer from what you say is ignoring your UK employment rights - this is daft for them and potentially expensive.

You have no choice under law but to file correct returns in both countries.

I would suggest you speak with a dually qualified US/UK tax adviser who can help you with both sets of rules and form filling.

MrsM,
I'll anticipate your next question and give you a couple of links to dual qualified tax experts who deal with situations like yours all the time and who can help you.

http://www.americantaxreturns.co.uk/
http://www.britishamericantax.co.uk/

Thanks for the advice (yet again!) and the links. I have concluded that it is probably best to seek advise from one of the people you've recommended, just to make sure all of my i's are dotted and my t's are crossed!