Form 2555 - declaring foreign income earned after moving to the USA whilst having an EAD/Green Card

[simonschus 58]

Hi all,

 

I'm just preparing Form 2555 tax return for 2016, having moved over to the USA in June 2016. I had foreign earned income for the whole year insofar that my company was comfortable with me working remotely after I had moved to the USA and had my EAD, then later my Green Card.

 

I'm confused about Part II, Question 10:

• Date bona fide residence began: this would be the start of the year.
• and ended: Now this is where I get confused.

 

For the end date, is the end date when I filed for AOS even though I earned foreign income for the rest of the year?

Or: is this the end of the year given I was still (and only) earning foreign income and continue to do so.

 

In case it matters, my payment was made to a UK bank account in UK£ by a company that is only UK based.

 

Simon.

 

P.S. I worked remotely. paying taxes in the UK and fulfilling US permanent residency requirements.

Edited February 14, 2017 by simonschus

[simonschus 58]

(I'm aware of foreign tax treaties and Form 1116, and have been looking into these for the period after moving to the USA).

Edited February 14, 2017 by simonschus

[A'n'L 735]

Oh wow, someone in the same situation as me. Hoping someone will come along with some good information for both of us. 

[simonschus 58]

1 hour ago, A'n'L said:

Oh wow, someone in the same situation as me. Hoping someone will come along with some good information for both of us. 

Haha, I'm somewhat lost but hoping to get some clarity so I can send everything off before the end of February 

 

I think (but could be drastically wrong) the we fill in the following for our first US tax year:

• IRS Form 2555 for our income earned before moving (the 'end' date being the day we left or that we filed for AOS, I'm unsure about this);
• IRS Form 1116 for income earned after moving (for me, I didn't start working remotely until after the EAD arrived);
• All the usual IRS Tax Forms (i.e. Form 1040) and any other declarations you need to make.

In future years, we'd fill Form 1116 too but not Form 2555 if we're living in the US but earning our income in another country.

 

However, I'm really unsure if my interpretation is correct or if I'm missing something/entirely. I think that most of the tax is written off given I've been paying tax on my income in the UK, and the UK has a tax treaty with the USA (Norway does too, per here).

 

Anybody have any thoughts?

 

P.S. I'm filing married jointly.

P.P.S. I'm going to work out all sorts of other things such as whether or not interest on my UK student loans can be included on US tax return (I don't claim them on my UK tax return). Lots of minutiae for me to enjoy, and I'm not look for an answer to that question here.

Edited February 15, 2017 by simonschus

[simonschus 58]

P.PP.S. I'm unsure about whether IRS Form 1116 is even required or if one can elect to put everything on IRS Form 2555 if they paid taxes in their country (which is the reason for original question about what the 'end' date should be on the Form 2555).

Edited February 15, 2017 by simonschus

[Suss&Camm 2,213]

It might be easier to use the "physical presence test" to qualify on the 2555. That's what I did. I didn't have income after moving, but for the presence test you can use any 12 month period where you were present for 330 days in a row. The bonafide residence test is harder since there are a lot of rules regarding domicile and abode overseas and in the US. There's a higher risk of doing this wrong.

Depending on how much you made during the year it might help... I don't remember the exact calculation but you can exempt somewhere around $110,000 for the whole year.. so for half of 366 days (or slightly less since you moved in June) you would end up being able to exempt around  $50,000 for the year of 2016. Don't know if that helps. 

Good luck. 

Edited February 15, 2017 by Suss&Camm

[A'n'L 735]

5 hours ago, Suss&Camm said:

It might be easier to use the "physical presence test" to qualify on the 2555. That's what I did. I didn't have income after moving, but for the presence test you can use any 12 month period where you were present for 330 days in a row. The bonafide residence test is harder since there are a lot of rules regarding domicile and abode overseas and in the US. There's a higher risk of doing this wrong.

Depending on how much you made during the year it might help... I don't remember the exact calculation but you can exempt somewhere around $110,000 for the whole year.. so for half of 366 days (or slightly less since you moved in June) you would end up being able to exempt around  $50,000 for the year of 2016. Don't know if that helps. 

Good luck. 

Yeah, I'm debating between the two. But, I think the 330/366 might not work for me since I travelled out of Norway frequently and for long stays through work. 

[A'n'L 735]

9 hours ago, simonschus said:

Haha, I'm somewhat lost but hoping to get some clarity so I can send everything off before the end of February 

 

I think (but could be drastically wrong) the we fill in the following for our first US tax year:

• IRS Form 2555 for our income earned before moving (the 'end' date being the day we left or that we filed for AOS, I'm unsure about this);
• IRS Form 1116 for income earned after moving (for me, I didn't start working remotely until after the EAD arrived);
• All the usual IRS Tax Forms (i.e. Form 1040) and any other declarations you need to make.

In future years, we'd fill Form 1116 too but not Form 2555 if we're living in the US but earning our income in another country.

 

However, I'm really unsure if my interpretation is correct or if I'm missing something/entirely. I think that most of the tax is written off given I've been paying tax on my income in the UK, and the UK has a tax treaty with the USA (Norway does too, per here).

 

Anybody have any thoughts?

Yeah, I'm thinking the end date is the date I arrived on the US (August), since I will need to also apply to be treated as a US resident for tax purposes to file jointly with my husband (only got my GC approved this Feb). 

 

We will talk to a tax accountant, but I'm not to hopeful about her having the necessary insights for such a complex situation. That's why I want to be as educated as possible before seeing her, to help her help us ;-)

[Suss&Camm 2,213]

6 hours ago, A'n'L said:

Yeah, I'm debating between the two. But, I think the 330/366 might not work for me since I travelled out of Norway frequently and for long stays through work. 

Well I hadn't done that but I do believe you just enter the dates when you were not there on the form and just don't include them. You might have read that part more carefully than me since that didn't apply to me,  but I don't remember seeing a limit as long as it was work-based travel.. 

It's a lot of reading isn't it? Hahaha

[A'n'L 735]

3 minutes ago, Suss&Camm said:

Well I hadn't done that but I do believe you just enter the dates when you were not there on the form and just don't include them. You might have read that part more carefully than me since that didn't apply to me,  but I don't remember seeing a limit as long as it was work-based travel.. 

It's a lot of reading isn't it? Hahaha

Yeah, but I was out for at least 60 days during that 12-month period, and as I understand all of those count towards the physical presence requirement (regardless of why I travelled).

[Suss&Camm 2,213]

5 minutes ago, A'n'L said:

Yeah, but I was out for at least 60 days during that 12-month period, and as I understand all of those count towards the physical presence requirement (regardless of why I travelled).

Right... you are right. :/

[aaa2zzz 27]

You cannot file Form 2555.

According to the instructions to the form, in order to use Form 2555, you must meet either the physical presence test for the foreign country (330 days out of the year, so, if you came in June, you will not make it) or the bona fide residence test (this you could meet) AND you have to have a tax home in a foreign country. " You aren't considered to have a tax home in a foreign country for any period during which your abode is in the United States. "

You lived in the USA for half the year, so your tax home was in the USA.

But you are missing the whole point.

Once you became a resident, you are taxed on worldwide income. Welcome to the USA! Now you owe money.

Before you became a resident, your worldwide (non-US)  income is not taxed in the USA. 

However, you are not taxed on your worldwide income for the period of time you were not resident in the US, unless you elect to be taxed as a resident alien for the entire year. You have to run the numbers and see which works better. 

See Publication 519, page 32. https://www.irs.gov/pub/irs-pdf/p519.pdf

For the benefit of others, Form 1116 is to get the foreign tax credit for taxes paid abroad.

Edited February 19, 2017 by aaa2zzz
more information

[Suss&Camm 2,213]

1 minute ago, aaa2zzz said:

You cannot file Form 2555.

According to the instructions to the form, in order to use Form 2555, you must meet either the physical presence test for the foreign country (330 days out of the year, so, if you came in June, you will not make it) or the bona fide residence test (this you could meet) AND you have to have a tax home in a foreign country. " You aren't considered to have a tax home in a foreign country for any period during which your abode is in the United States. "

You lived in the USA for half the year, so your tax home was in the USA.

But you are missing the whole point.

Once you became a resident, you are taxed on worldwide income. Welcome to the USA! Now you owe money.

Before you became a resident, your worldwide (non-US)  income is not taxed in the USA. 

However, you are not taxed on your worldwide income for the period of time you were not resident in the US, unless you elect to be taxed as a resident alien for the entire year. You have to run the numbers and see which works better. 

See Publication 519, page 32. https://www.irs.gov/pub/irs-pdf/p519.pdf

Remember, however, that you can get a foreign tax credit for taxes paid abroad.

If they send the election statement they can file the 2555.

[Gitana 11]

Physical presence test can be used for any 12 month period either starting in 2015 or in 2016. ( i claimed period from 10th April 2015 to 9th April 2016). During those 12 month you can stay in Usa no more than 330 days, traveling to other countries doesn't matter. when you figure out your 12 month period, calculate how many days fall in 2016, divide that number by 366 and than multiply by 101 300. resulting number will be your exclusion for 2016

[aaa2zzz 27]

deleted

Edited February 19, 2017 by aaa2zzz
update