Can a UK citizen work more than 183 days in US and still reclaim US witholding taxes?

Question

I am working on board a self propelled pipelaying vessel in the Gulf of Mexico 120 nautical miles south of New Orleans
Company is stopping US Witholding tax

have been working as contractor in Gulf of Mexico for 4 years. Company stops 20% US witholding tax. I submitted Amended IR1040 for 2003 year and recieved tax rebate( recieved 2006) Unbeknown to company! Every year I have done less than 183 days in G.O.M this year my company wants me to work longer and it concerns me that I may lose right to rebate although : Tax Law Article 14 states"Income recieved be a resident of the UK for services performed as an employee and member of the regular complement of a ship or aircraft operated in International traffic is exempt from US income tax" Do I do the additional days ????

Answer 1

The treaty needs further examination. Under UK law there is Residence and Ordinary Residence. If you are out of the UK for more than 183 days you cease to be Resident for that year, but there is considerable case law (most of it involving UK citizens working in the US or vice versa) that would keep you Ordinarily Resident, for instance, if the extended time is only temporary. The rule of thumb is you are Ordinarily Resident for UK purposes if you spend more than 90 days on average over a four year period physically present in the UK. I do not have easy access to a copy of the current treaty, but if you have a UK accountant, they will be able to advise you as well as a US one.

However, we must now turn to the issue of the tax already being withheld. If your employer is withholding US taxes it is because it feels you are liable to pay them in the USA (either that or it is covering itself). The idea of a tax treaty is that any taxpayer will pay tax on the same income to only one country. If they are correct - that you are subject to US taxation, you are obliged to complete a US tax return. As with UK taxes, you should find someone who specializes in "maritime" workers. The best bet is to ask around your vessel for recommendations.

Is your employer also deducting Social Security (6.2% of gross wages up to about $90,000) or Medicare (a flat 1.45% on all wages)? If he is then you should engage an accountant both in the UK and US because I believe the treaty still gives a five year exemption even if you are subject to tax in the US. The idea behind this is that you can still pay into the UK scheme (Class 3 contributions), if that is where you intend to work in the future and to retire to. Mind you, they have revised the treaty since I last looked at it so I may be out of date.

In summary, resolve your residency status in terms of the treaty; submit a US tax return if required - any income received prior to 12/31/05 should be reported without delay as the 2005 filing deadline passed last Monday; address the situation with social security contributions - if you are not required to pay them in the US consider Class 3 contributions to maintain your UK record.

Answer 2

Good job, Skip!

A couple further notes: As you meet the defintiion of resident in both countries, you can use the treaty Article 4 to declare residence in just one country. It's a facts and circumstances case, which is probably UK given what you have posted - seek a competent US/UK dual professional to help you determine for sure.

As a US NRA, under the treaty your liability is soley based on US source income and possibly also any US workdays (as you exceeded 183 days in the US) from a UK employer. This involves Article 14, which is pretty archane and requires knowing where your employer is. In the UK, you will get a tax break for the fact that the US is taxing some of your income. Ka-ching! You win the benefits of the doubletaxation treaty.

Going forward, you can take steps to ensure that the country of your residence is just the country with the better tax system for you. This is because you can make lifestyle changes such that the Article 4 tests work in your favour. Again, competent dual US/UK advice is needed to ensure you are saving tax isntead of making it more burdensome.

Answer 3

I'm not sure what you mean by "stopping US withholding tax" -- do you mean they will no longer withhold?

There are a number of factors to be considered, including how long you have been working in that area, which I assume is part of the Continental Shelf over which the US asserts jurisdiction, whether you have a permanent home in the UK, etc.

You should consult a US tax advisor who can consider the applicable law and tax treaty in light of your particular facts. However, the general answer to your question is "yes", there are circumstances under which a UK person can be present in the US more than 183 days and still be entitled to a full or partial refund of withholding taxes.

Answer 4

It's possible. It depends on how much you've made. Any good tax preparer should be able to take your residency status and income to determine what your tax liability is if any.