Transferring Money to US - Redundancy/Taxes etc

[london2014 0]

I am going to be receiving a redundancy package in Jan 2015 for approx. $90,000. My question is when I receive this I will probably just send a cheque for half to the US for my firm to do an FX from GBP to USD. I will eventually do this for the final amount but I am curious with this being redundancy money I think the first £30,000 is not taxed here but the rest will be at various rates. The issue also being that as I will being moving to the states and not getting another job here. Usually when your made redundant and get another job at some point HMRC refunds you back thru your new employer etc. I know that the tax they take on the redundancy will be too much as this has already happened to another collegue.

1. I am assuming I will have to sort this out with my local tax department from the US to get some of the tax back

2. How do I claim the over £30,000 that I will be paid etc on my US tax return as I dont want to be double taxed

[Nich-Nick 3,354]

I am going to be receiving a redundancy package in Jan 2015 for approx. $90,000. My question is when I receive this I will probably just send a cheque for half to the US for my firm to do an FX from GBP to USD. I will eventually do this for the final amount but I am curious with this being redundancy money I think the first £30,000 is not taxed here but the rest will be at various rates. The issue also being that as I will being moving to the states and not getting another job here. Usually when your made redundant and get another job at some point HMRC refunds you back thru your new employer etc. I know that the tax they take on the redundancy will be too much as this has already happened to another collegue.

1. I am assuming I will have to sort this out with my local tax department from the US to get some of the tax back

2. How do I claim the over £30,000 that I will be paid etc on my US tax return as I dont want to be double taxed

Here's what I think.

You will be a US permanent resident by then so your worldwide income is reported on your 2015 tax return which you won't even start on until maybe Feb 2016. The entire amount you get will be reported, not just what you transfer over because it is income paid by an employer and different from savings you already have. Does that make sense? You are a permanent resident of the US, so new Income you earn in a tax year is reported for that tax year, no matter where in the world you earn it.

There is a tax treaty to keep you from paying double taxes. Here's a little on the Foreign tax credit. That's a credit subtracted from you US taxes in the amount you paid to a foreign government.

http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Tax-Credit---Choosing-To-Take-Credit-or-Deduction

Some people get a foreign income exclusion, but by 2015 you won't be living in the UK any part of that year so not thinking you would qualify. If you got the money in December (2014 tax year) then maybe. There are all sorts of formulas and I don't have all that memorized.

Not so sure about the HMRC end of things, but there is a form P85 to file to let them know you are leaving the UK. If you have overpaid any taxes they sort it out and refund you. Does this apply to your question? Not sure. But my husband did the P85 and they worked out he got some money back for the year he left and the previous year too. It was a good amount of money.

Anyway, maybe that will help you with some things to research.

[london2014 0]

Here's what I think.

You will be a US permanent resident by then so your worldwide income is reported on your 2015 tax return which you won't even start on until maybe Feb 2016. The entire amount you get will be reported, not just what you transfer over because it is income paid by an employer and different from savings you already have. Does that make sense? You are a permanent resident of the US, so new Income you earn in a tax year is reported for that tax year, no matter where in the world you earn it.

Some people get a foreign income exclusion, but by 2015 you won't be living in the UK any part of that year so not thinking you would qualify. If you got the money in December (2014 tax year) then maybe. There are all sorts of formulas and I don't have all that memorized.

Not so sure about the HMRC end of things, but there is a form P85 to file to let them know you are leaving the UK. If you have overpaid any taxes they sort it out and refund you. Does this apply to your question? Not sure. But my husband did the P85 and they worked out he got some money back for the year he left and the previous year too. It was a good amount of money.

I am here until the end of Jan and we probably wont be leaving the UK until around March 2015. I was originally supposed to leave earlier (Oct 2014) but they asked me to stay and paid a retention bonus to keep me until Jan 2015. I am actually the US citizen as we are applying for my husbands IR-1 (been married almost 9 yrs). I am also going to assume my P-60/P45 will reflect what tax is taken out so I will go off those figures when contacting HMRC. Did you contact them thru email or just call them to sort out getting the money back? Did they send a cheque for what should have been refund and I am assuming they can just deposit it directly to a UK bank by sort code?

Thanks again for all the help and I'll have a look at the P85.

[Nich-Nick 3,354]

I am here until the end of Jan and we probably wont be leaving the UK until around March 2015. I was originally supposed to leave earlier (Oct 2014) but they asked me to stay and paid a retention bonus to keep me until Jan 2015. I am actually the US citizen as we are applying for my husbands IR-1 (been married almost 9 yrs). I am also going to assume my P-60/P45 will reflect what tax is taken out so I will go off those figures when contacting HMRC. Did you contact them thru email or just call them to sort out getting the money back? Did they send a cheque for what should have been refund and I am assuming they can just deposit it directly to a UK bank by sort code?

Thanks again for all the help and I'll have a look at the P85.

If you are the USC, then you have already been filing US tax returns every year so that part about reporting foreign income wouldn't be new. I didn't follow that from you. I am also the USC and don't know a P60/P45 from a donut. I do know that my fiancé (husband) rang up HMRC and a kind lady talked him through the P-85 line by line. He filed it in the weeks before he left. He was already in the US and the money was deposited in his UK bank account. He got a letter in the US notifying him of their refund details. Maybe if you ask about the P-85 in the UK forum, some others can tell you how they received their money.

[london2014 0]

If you are the USC, then you have already been filing US tax returns every year so that part about reporting foreign income wouldn't be new. I didn't follow that from you.

The issue I am worried about is that with redundancy here the first £30,000 is tax free. I just dont want to wind up getting over taxed when I go to the US for monies I shouldn't be taxed on. As I dont know how long it is going to take me to get another job every bit helps. I think I will probably have to pay someone to do my taxes for 2014 and 2015 over in the US as this part of it is way to complicated for me.

[Owen_London 65]

I'll echo Nich-Nick's comments about the foreign earned income exclusion. As long as you are paid before you immigrate to the US, and you (or your preparer) do your taxes on that basis, you should be fine. For 2015, it will be about $100k.

Beware, though. The dual taxation treaty is there to prevent you paying taxes on the same thing twice. It is not there to prevent you having to pay US taxes on something that wouldn't be taxable in the UK (or vice versa). Examples are ISAs, tax-advantaged share plans and endowment-based life insurance, but there are others. It's often best to get out of these things before you arrive in the US, and if possible in the previous tax year too.

Edited May 29, 2014 by Owen_London

[BBCC 16]

Some people get a foreign income exclusion, but by 2015 you won't be living in the UK any part of that year so not thinking you would qualify. If you got the money in December (2014 tax year) then maybe. There are all sorts of formulas and I don't have all that memorized.

The formula is found by filling out IRS Form 1116. We do it every year as we live in US but work in Canada.

The basic idea of the formula is you get 100% of the possible tax credit if you earned 100% of your income outside the US.

Where it gets complicated is if you earned only, say, 50% of your income outside the US and the rest within the US. In that case, the formula will indicate that you only are entitled to 50% of the tax credit. In tax years where this happened to us, we ended up owing some income tax to the US and some to the foreign country

If you earn foreign earned income for more than one tax year, look into doing carryovers of unused foreign tax credits to future year taxes to minimize your foreign tax credit. This option has really saved us money.