Laws on taxation can feel complicated enough in one country. Add a second into the mix, and many foreign nationals find themselves unknowingly paying taxes that weren’t required.
If you’re a citizen of the United Kingdom who is daydreaming about spending some time working in the United States, you’ll quickly discover that U.S. taxation for foreign nationals is fairly unusual. The rules distinctly differ from those in the United Kingdom.
These are some important tax tips that any citizen of the United Kingdom should know before crossing the pond.
In the United States, you’re expected to file annual tax documents to both the federal and state government. State taxation laws and how they apply to UK citizens vary by jurisdiction, so make sure that any information you receive matches up with the state where you’re spending time.
If you’re working in the United States legally but without a green card, the federal government classifies you as either a resident or nonresident alien.
Regardless, workers in the United States of America pay income tax on their salaries, like American citizens. If you become a U.S. resident alien, you are additionally responsible for paying income tax to the U.S. on worldwide income. That would include time that you spent working in another country, or sources such as rental income.
People who are spending a significant amount of time in the United States aren’t necessarily residents. To satisfy something called the Substantial Presence Test, the magic number is 183. That’s 183 days out of the last year spent in the United States. It seems like an arbitrary number until you realize that this represents one half of a 365-day year.
If you spend at least 31 days in the United States, you’ll need to file a tax return on your U.S. income. You will not have to pay income tax on U.S. income to the U.K. Your home nation only applies income tax to money earned in the U.K. or through U.K. sources.
If your travel and work plans have some wiggle room, consider whether it’s in your best financial interests to be legally classified as a resident alien or a non-resident alien.
Each status benefits some individuals. Non-residents generally don’t pay taxes on income earned outside the United States, but they’re not eligible for many of the deductions available to residents. For example, nonresident foreign nationals cannot claim children or other relatives as dependents for tax purposes.
In the US as in the UK, people are expected to report on their income during any given tax year. In the UK, the tax year runs from April 6thof one year to April 5thof the next.
The United States keeps this aspect a little more intuitive with tax years running from January 1stto December 31st. Keep in mind that you have until April 15thto file paperwork on the previous tax year.
Be careful counting days for your Substantial Presence Test. Because the years don’t match up, it’s strange but possible to be a tax resident of neither country or both countries on the same day.
Being taxed on UK income by both the US and the UK sounds pretty unfair. Here’s some good news—both of those countries agree. The U.S. and the U.K. have a long-standingtax treatydesigned to prevent either nation’s citizens from paying the same tax in multiple locations.
You’ll be able to deduct taxes that you already paid. The exactly amounts change by the year, so it’s smart to get expert advice on this aspect of your taxes.
While there are lots of financial aspects to consider when you take the big step of moving to a foreign country, the payoff is worth the extra effort. Explore the world, find new things to experience—and don’t forget to pay your taxes.