S is a recent college grad who has been working in Great Britain since last fall (he works for a major company with offices worldwide). He recently asked us about filing income taxes and we are stumped. He’s a US citizen so we know he has to file in the States, but what about in Great Britain? How does he do that?
Anyone here who can give us advice?
He may need to file in the UK as well. Unlike in the US, not everyone needs to file a return, so he can check his situation.
https://www.gov.uk/check-if-you-need-tax-return
The UK tax year ends on April 5 and tax returns are due by the following Jan 31st. So he has almost a year before he needs to do anything. I assume he will have UK income tax taken out of his salary, this can be offset against tax due in the US. The offset tax years make things a pain, but can reduce the total tax paid.
He does need to consider if he wants to pay into the UK or US social security system. By default his employer would take UK contributions and those may be less expensive for them (and him), but the benefits aren’t as good and splitting contributions across the two systems can be problematic later on. Having said that, if he’ll come back to the US by the time he’s ~30, it probably won’t matter.
This may be a good read, https://www.greenbacktaxservices.com/blog/expat-taxes-explained-filing-taxes-as-american-uk/
When I lived abroad I had to file in both countries because I got credit for the taxes I paid in the foreign country.
I have to file in the U.S. every year even though I have lived in Canada for 40+ years and have had no income in the U.S. Crazy tax rules.
@FallGirl Your son can likely get good advice from his employer. If they have offices worldwide, they should know the answer to his question.
@FallGirl, look at IRS Pub 54 – https://www.irs.gov/pub/irs-pdf/p54.pdf
S2 is going through the same thing right now. His contract letter with his employer says they pay all taxes, though S is not sure if he has to actually file a return in his current country. Is trying to find out from the employer. Seems to be a big deal to even get a statement of earnings out of them. However, it does look like virtually all of his foreign earnings will fall under the exclusion provisions, so will not be taxed by the US.
If the employer is paying all taxes then they should be doing your kid’s taxes. My old employer filed my taxes on my behalf for 5+ years even though I only lived abroad for 2 years because there were carry overs.
I paid German taxes in Germany and it was super easy. My husband had to pay them some years, but not others depending on where the money was coming from. We filed US tax forms, but didn’t have to pay because we were paying German taxes and the two countries have some sort of agreement. The US and Hong Kong don’t so we believe we will have to pay taxes on our Hong Kong income here as well as in Hong Kong. (The HK taxes were so low, it’s no biggie.)
I’ve been an expat for 16 years. I file and pay in my country of residence and in the US every year. Your son should probably talk to some fellow expats and/or a tax accountant.
There’s a limit to the amount of income that’s subject to the US foreign income exclusion. There are lots of other items that also factor into the equation, including whether it’s a US employer or a British one. Reading will give your son an idea of what questions to ask of his employer/tax preparer.
If he works on a secondment for a major international company, it is common for them to have taxes done as part of the package. Why doesn't he ask at work?
Thanks for all of your responses - I will forward them on to S. I have suggested he talk to HR or the tax departmant at his company, but for some reason he hasn’t.
FallGirl - When I was an expat for my company, every year their accountant (one of big 4) would notify all employees they are doing taxes for and sometimes they miss some people. I also had no option of doing my own taxes because my company was responsible to pay my taxes. I would be very surprised if it’s not the same for your son if his contract says his company is responsible for his taxes.
@oldfort - I will ask him to go back and check his contract. The company he is with is one of the “ big four”.
The foreign earned income exclusion was $103,900 in 2018, fwiw.
I worked overseas for two of the big 4 for 14 years. He really should not have a problem in getting plenty of advice/help in completing his taxes and I would suggest to him to ask around there as they will have experts able to help.
This thread has reminded me of a neighbor who worked abroad …Years ago, he worked abroad for an American company. As I remember the story, if he was physically present in the foreign country 330 days he didn’t have to pay US income tax. Suppose he had to file but not pay. I’m not aware if he paid taxes in the host country…
Does this ring true to anybody familiar with these situations?
That’s pretty close to one of the tests for the foreign earned income exclusion.
I am surprised he didn’t have to pay taxes in the host country. The exclusion is only a bit over 100k. At some foreign countries, like Australia, they actually make foreigners pay higher taxes than residents. I recently considered working there, but decided against it after I found out how much taxes I would have to pay.
he had to file but not pay<<<<<<<
Below the exclusion $ amount, then that is how it works. That would not be considered good pay for expat types though.
As for Australia Oldfort IIRC, if you live and work there full time, you are a resident for tax purposes, the nuance is not for average ex pats working there. They certainly will tax the whole enchilada though. If you are non resident for tax purposes, that would be something you would be doing for your own tax advantage re global income. .