Paying Taxes back to USA?

Hi All,

Ive read plenty of posts on here that all look similar to my query but I am confused and do not want to take over someone else's thread.

Scenario
My Wife is American and will be moving over to the UK to be with me (British Citizen) in July 2016 once (hopefully) her Settlement / Wife Visa is granted.

She will be leaving some $ in a bank back in America for easy access when she flies back at various times to visit family

She will not be doing any work in america from June 2016 onwards

She hopes to get a UK job in teaching.

Now our question.

What does she have to do for her Tax Return in 2017 in USA.  Does she have to declare any UK earning?  And if so does that mean she could be paying tax on these twice, once to the UK and then again in USA on UK earning?

Thanks in advance..

Hi All,

Ive read plenty of posts on here that all look similar to my query but I am confused and do not want to take over someone else's thread.

Scenario
My Wife is American and will be moving over to the UK to be with me (British Citizen) in July 2016 once (hopefully) her Settlement / Wife Visa is granted.

She will be leaving some $ in a bank back in America for easy access when she flies back at various times to visit family

She will not be doing any work in america from June 2016 onwards

She hopes to get a UK job in teaching.

Now our question.

What does she have to do for her Tax Return in 2017 in USA.  Does she have to declare any UK earning?  And if so does that mean she could be paying tax on these twice, once to the UK and then again in USA on UK earning?

Thanks in advance..

As a US citizen your wife is always a resident of the United States for US tax purposes. Consequently she remains subject to all US tax and information return filing obligations. IRS Publication 54 provides a good summary of the IRS view of the law.

and the specific answer to one specific question, US citizens are taxed on worldwide income, so yes, any earnings in the UK will be reported on her 1040.

Under the US-UK tax treaty, it is unlikely that your wife will pay tax in both the UK and the USA. Once qualified as either a bona fide resident or by the physical presence test, she can take the federal earned income exclusion (FEIE). Alternatively, she can take a Federal Tax Credit (FTC) for tax paid to the UK; UK tax rates are typically higher.

KEEP RECORDS - of everything.

Your wife should have no need to consult the US/UK tax treaty, as this of limited assistance because of the "saving clause" that saves the right of the United States to tax its citizens as if the treaty did not exist.

The domestic laws of the United States should remove liability to most US tax in most circumstances.

She will be leaving some $ in a bank back in America for easy access when she flies back at various times to visit family

It's easy to access money from UK accounts while in the US.....US cash machines accept UK cards, but there are some good reasons to keep US accounts open. Just be aware of the UK tax issues that might be involved.

I would strongly recommend that your spouse opens an investment account with Vanguard before she leaves the US and funds a ROTH and maybe rolls any other 401k type retirement money into a Vanguard IRA.

What does she have to do for her Tax Return in 2017 in USA.  Does she have to declare any UK earning?  And if so does that mean she could be paying tax on these twice, once to the UK and then again in USA on UK earning?

Thanks in advance..

Because your spouse is a US citizen she will have the same US tax filing obligations as she had as a US resident. So she must include all here worldwide income (that obviously includes UK earnings) on her US return. However, she can exclude a large amount of foreign earned income from US taxation and/or take credit for UK taxes paid so she will not be taxed twice. In most cases your wife will pay the UK tax man first and after that there's usually very little (if any) US tax to pay.

Google "IRS Foreign Earned Income Exclusion" and "IRS Foreign Tax Credit"

Thanks for all the responses, I will now pass it on to her to read and fully understand :-)

Our family will be moving to the UK this summer.  We are all US citizens.  As mentioned in previous posts, US citizens are taxes on GLOBAL income - no matter where you live.  You can avoid double taxation if the country you live in has a treaty with the US.  The UK does but it has a limit of 10 years or 15. This means that after that period, the UK and the US can tax your wife's income.  At that point, she should probably move or stop working.  When we lived in Germany, our tax advisors advised us that after 10 years, Germany could treat us as locals and our living trust would taxable by their standards. 
Also, keep in mind depending on her tax situation in the UK - that any money she brings into the UK will be considered income the UK.  So if she earns investment interest in the US and brings it into the UK (wire, bank transfer) it will be treated as income for UK tax purposes this includes using a US issued credit card and paying that credit card from a US account.  Depending on which state she moves from, she may still be liable for taxes if she spends more than a certain amount of time in that state.  CA is a state that is hard to break residency from.  We had to pay taxes as non-residents for the days we went over our limit - even just for visiting family.  You are taxed on personal and work income.  So you need to find out if her state has a tax treaty with the UK.  CA will check passports, bank statements, credit card statements if you are audited. 
I saw you posted in another post about US income tax.  We had to pay taxes for days worked in the US while we lived abroad.  The tax treaty eliminates double taxation but not additional taxation from states with no treaty.

MunichLondonExpat

So (Ive just woke up so may misunderstand)

My Wife will be moving from California to UK later this year (Visa pending!)

She plans to work in UK so obvisouly she will pay taxes on that ot the UK, but what your saying possibly for the first 10 years she does NOT have to pay any taxes back to USA on her UK earnings?

In terms of bringing money into the country then we were actually thinking of leaving it in her USA Bank Account for when she goes back for visits to family etc a few times a year.

Lastly you mention that there is a law for going back to CA which could also screw her somehow on total number of days she goes in a year?

Thanks in advance

Whoa - there's so many misunderstandings in your post and prior posts that it's almost impossible to comment.

Forget anything said about GERMANY - it does not and will not apply to you/your wife. There's no '10 year rule' that I've ever heard of - not a clue what that's about.

And, if your wife has US income AFTER she arrives in the US, you DO need to be aware of the US-UK tax treaty. Not all income is subject to the savings clause.

She will have to file  US tax return and declare worldwide income; whether she owes US tax will depend on her specific situation, but the likelihood is that by taking either the FTC for tax paid to the UK, or using the FEIE, she won't.

State tax is a different animal; if she never intends to live in California again, then she needs to take steps to break ties and become domiciled in the UK. Virginia is also a state that tries to hold onto you forever, but I successfully got a ruling on change of domicile, and broke my ties to the state.

Nun's post has valuable info.

Thanks Vadio for the response.

We do plan to move back to California in the future at the moment it will be probably in 6 - 7 years time.     Looking out of the window today at snow in April she may not last that long! 

As you are moving to the UK during the 2016-17 tax year and are currently both trustees of a foreign trust, you urgently need legal advice on the UK tax implications of the current structure. The simplest solution to a particularly high risk situation would be to dissolve the trust this year and move to the UK after 5 April 2017. This might also give you enough time to move to investments suitable for a UK resident US citizen.   

Sorry for the confusion SWILT.  What I meant to say was that taxation treaties between countries help prevent individuals from being double taxed.  So whatever time limit the tax treaty has, you are somewhat protected from paying taxes to the US and the country you live in as a US citizen.  For Germany, the tax treaty with the US was or is 10 years.  So in our case, if we had lived in German for 10 years, both the US and Germany could have taxed us on our income.  The government view is that after 10 years, we have opted to be permanent residents of Germany and thus should pay taxes as "permanent" residents.  The foreign tax credits would disappear and double taxation could take place. 
I don't recall exactly how long our tax prepare said the UK/US tax treaty can be applied to a tax payer.  I did read in my info pamphlet that the UK will consider you "domiciled" if you live 17 out the past 20 years in the UK. 
With regard to CA, it is very hard to break residency.  CA knows that many individuals have second homes in the state so they make it hard live in the state and avoid the high state income tax.  Read Publication 1031.  You will find info on how residency is determined.  In our case, we own homes in CA and most of our financial accounts are in CA.  So when we lived abroad, we had to continue filing CA tax returns as non-residents. But in order to qualify as a non-resident in our case we could only spend less than 45 days a year in CA.  If we spent more, we had to pay taxes for those extra days on ALL our income WORLDWIDE and not just CA sourced.  It is hard to break ties to CA.  Once your wife stops filing a CA tax return, the state may ask why and as in our case may want a copy of her foreign visa and a copy of every page in her passport to see her travel. 
Being a US citizen and living abroad, can have many tax implications.  Thus, we have always worked with a large accounting firm to know the implications.  For example, assets in the US inherited by non-US citizens or Non-Green card holders have different tax exemptions than those for US citizens and Green card holders. 

https://www.ftb.ca.gov/forms/2015/15_1031.pdf

Thanks for the PDF I'll take a read through it and pass it on to the wife.

To simplify our situation

I am British and have been since birth 45 years.  Ive never lived outside of Derbyshire!.

My Wife is American and is a resident of California.  The plan and Visa application is for her to come and live in England Full Time from this Summer and work for a British Company, she is in process of resigning from her American Role.

No Assests will be left in USA apart from a check in account with a small bit of money to make it easier when she goes back and forth

She will only be going back to America to visit her Children and reside in their houses whilst visiting

It may or may not be over 45 days a year I cant answer that at the moment.

She(We) plan to emigrate to California maybe in 6 - 7 years time.

Regards.

If she does not spend more than 45 days in CA - even if just visiting - then she shouldn't be taxed by CA assuming she has no CA sourced income (including checking account interest).  There maybe a min amount you can earn without filing return but don't know.
DO READ THE PDF.  There maybe tax implications if she / both of you are planning to return to CA.  Factors that determine residency include:  time in CA, location of children, driver's license, location of banks, social ties . . . She may want to move her banking account to a different state.  See Section G in PDF file.

If the children are in CA and she has an intention to return to CA in the near future then I bet CA will consider her to be CA divulged and therefore subject to CA tax, be careful on this.


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