Taxes while abroad?

Question

I am currently in London, but I work for a US company. Under what taxation do I fall within? To make matters more complicated, my address on file is in Illinois, but I will be working in New York City. Do I pay London, New York, or Illinois tax?

Answer 1

U.S. Federal Income Tax - I assume you are a U.S. citizen in which case, you will file a U.S. federal income tax return on all your income no matter where it is earned. Depending on the length of your employment assignment, you might be able to exclude your foreign source employment income from your U.S. return. See http://www.irs.gov/faqs/faq13-7.html. If you cannot take the exclusion, you can reduce your U.S. tax with a foreign tax credit for U.K. income taxes that you might have to pay. See IRS Form 1116. In cases where you take a foreign tax credit, you may be subject to the U.S. AMT (alternative minimum tax). For short trips (less than 12 months), if you pay your own living expenses (hotel, rent, food, etc.) and are not reimbursed by your employer, you can take a deduction for actual expenses or a per diem (per day) deduction for living expenses based on tables that the U.S. government publishes.

U.K. National Income Tax - You will need to file a U.K. income tax return on your U.K. source income if you work in the U.K. for more than 183 days in any 12 month period. See article 14 of the U.S. - U.K. income tax treaty at http://www.treasury.gov/offices/tax-policy/library/uktreaty.pdf. In addition, you will need to pay NIC (the U.K. form of Social Security), however, your U.S. employer can obtain a letter from the U.S. Social Security administration indicating that you are covered under U.S. Social Security which your employer sends to Inland Revenue and then you will not need to pay NIC. Have your employer search the web for "totalization agreements").

U.S. State Income Tax - Your employer should report your U.S. earned income to the state in which it was earned. If you are working the in the U.K., then that income should not be reported in either Illinois or New York, but you might have to file Illinois or New York part year resident returns if you earned income in any of those states.

My suggestion. Have your employer arrange with one of the big four CPA firms to prepare your UK and US federal and state tax returns.

Other Considerations - Many employers have "equalization agreements" with their employees in which they make the employee whole for taxes (i.e. you will not pay any more or less because you are working in the U.K. than if you worked in the U.S.). You should ask your employer. Working in the U.K. may subject your employer to having to file a U.K. business tax return for themselves.

There are a hundred other things to consider. Been there, done that. Good luck!

Answer 2

i worked overseas for 7 months last year. didn't affect taxes. if i understood my accountant, you must live 330 days or more overseas during the year to exempt those wages. i don't think you'll have to pay an income taxes in England...

since you're an Illinois resident you will owe taxes there. if you end up paying any taxes in New York, then you'll need to fill in NY to get that amount refunded to you. You'll probably have to file in NY and IL.

i'm not a tax lawyer, nor do i play one on tv, but i've had to pay in similar situations, so i hope this helps.

Answer 3

Give taxman your best answer award.

Let me add one thing:

The "Internal Revenue and Tax Audit Services, Inc." or the IRS as we know it considers that as a United States Citizen, you owe taxes on all income earned domestic or abroad if you receive it in the US. They actually want it no matter where you receive it but they cannot legally do that yet, but these Tax Reporting Treaties that they are collecting from some of the offshore havens has caused a lot of concern.

Anyway, kudos to Taxman, my vote for best answer, and Kudos to me for at least trying to take less than ten paragraphs for my answer.