Still UK (remote) employee - Switching from UK to US taxes - K1 visa

[VisaDJ 16]

Hi everyone,

 

No idea if anyone can help me but I am a little lost with what to do here...

 

I moved to the US last summer and continued to work for my UK employer remotely, and therefore paid the regular UK taxes etc. as usual, while I waited on my employment authorisation to be granted in the US.

I now (finally!) have that through after a long wait, and need to know how to proceed with things:

 

1) Submitting my first US tax return within the next few months

     - Do I have to do this, even though I had zero earnings in the US last year (and also, not entirely sure if I was technically supposed to continue working for my UK company while I waited on the US authorisation?)

     - I was advised that I should complete a P85 form in the UK asap, which would trigger the UK tax office to provide a refund (which I was told may be all UK tax paid for 2017). Is this correct? If so, do I then need to keep all of that to pay the US taxes for 2017?

     - Is it advisable to submit a joint return with my wife (she is obviously the US citizen)?

 

2) Paying US tax each month and stopping UK taxes
     - I was also advised that once the P85 and UK tax return is complete, I would then continue have my salary processed as usual in the UK (with zero UK tax deducted), so that US tax could be removed and paid.
     - Should I ask my UK payroll company to process the US taxes or would I need to do that myself / through another company on the US side?

Hope that makes sense - sorry for the no doubt confusing explanation/questions!

 

Thanks in advance for any help you can give

 

[Boiler 45,956]

You need to discuss this with your CPA, US taxes residents on their world wide income.

[Wuozopo 4,293]

YES, you file 2017 US taxes. There are multiple options.

One option:

• Joint with wife
• You report every penny you earned from Jan-Dec as income on your US return. 
• Income earned while still resident in UK can be excluded using form 2555 Foreign Earned Income Exclusion. The income earned after arrival in US can not be excluded with Form 2555 because you are no longer qualified once moved out of UK. But the foreign (UK) taxes paid on it can be taken as a credit for foreign taxes paid. That is only if you don't get the last half of 2017 UK taxes refunded to you using P-85. You can't take US credit for taxes you ultimately didn't pay because refunded. If you file a P-85 and claim you left the UK in July, then those taxes from July onward will be refunded. Best to  not plan on using the foreign tax exclusion on your US tax return and simply figure US taxes for that income. 

So going forward into 2018.  For the IRS, you are either an (a)EMPLOYEE of or (b)SELF-EMPLOYED CONTRACTOR of the UK company. Differences:

 

EMPLOYEE: The company must withhold out of your paycheck your US federal taxes, Social Security, and Medicare. They must get an Employer Identification Number (EIN) from the IRS and submit the money they held out of you check directly to the IRS each payday on your behalf. They must issue you (and report to IRS) a W2 wage statement when the tax year ends Dec 31, 2018 stating your earnings and the total held out for taxes, Social Security, and Medicare.

 

SELF-EMPLOYED CONTRACTOR: The company does not hold anything out of your paycheck or submit to the IRS. They do need an EIN because they will issue you (and report to IRS) a 1099-MISC wage statement stating your total earnings. You will be considered self employed to the IRS. You file a Schedule C, Profit and Loss from Business form with your tax return. It's like you own a small business. You pay in your own federal tax withholding quarterly because an employer is not doing it for you.  And you file Schedule SE, Self-Employment tax with your tax return. That SE is really you paying in your Social Security and Medicare instead of the employer taking it out of your check and paying in for you. You get a bigger paycheck,  but need to put some back to pay in to IRS for yourself. Requires some discipline on your part. As a "business owner" there are business expenses you may be able to take...maybe a UK phone line, equipment, a portion of your mobile phone if used for business, office supplies, etc. You also get to deduct the premiums for health insurance and half your Social Security payments as self-employed. Disclaimer: I do not know how business expenses are addressed/changed for the brand new tax code that starts 2018. That's why I said may be able to take. I haven't studied the new code details.

 

[VisaDJ 16]

Thanks so much for the extensive reply, Wuozopo really appreciate it.

OK, so I will go ahead and complete the P85 and then keep any refund I get to put towards the tax owed when my wife and I submit a joint return for 2017.

 

I'll then speak to the company that currently run my payroll and ask them to set up for the US taxes, SS and MC. Just out of interest (if they are unaware of what they need to do and are unwilling to find out), am I able to request my own EIN to get the ball rolling?

 

Thanks again!

[Wuozopo 4,293]

1 hour ago, VisaDJ said:

Thanks so much for the extensive reply, Wuozopo really appreciate it.

OK, so I will go ahead and complete the P85 and then keep any refund I get to put towards the tax owed when my wife and I submit a joint return for 2017.

 

I'll then speak to the company that currently run my payroll and ask them to set up for the US taxes, SS and MC. Just out of interest (if they are unaware of what they need to do and are unwilling to find out), am I able to request my own EIN to get the ball rolling?

 

Thanks again!

 

You do not need an EIN for yourself unless you plan to hire employees/subcontractors and pay them wages and issue them W2s or 1099s at the end of the year.  The person paying you has to apply for their own EIN from the IRS.

 

I got a lot of this understanding of the situation I described by talking to a lady at the IRS. My call was getting bounced around and I ended up with a lady who answered "Are you applying for an EIN today?" No, my question was different, but she explained a lot about foreign employers to me. I had no idea a UK company could get an EIN. She said "Oh yes, and it's very easy. That's what I do all day...process EINs for foreign employers." It's difficult to find easy answers on the IRS website because so much focus is on US residents living and working abroad for a foreign employer, but you live in the US and get paid by a foreign employer. I found this snippet--

Employers outside of the United States may also apply for an EIN by calling 267-941-1099. 

and

If you were incorporated outside of the United States or the U.S. territories, you cannot apply for an EIN online. Please call us at (267) 941-1099 (this is not a toll free number) between the hours of 6:00 a.m. to 11:00 p.m. Eastern Time.

 

The employer would submit your withholding electronically to the IRS through a system called EFTPS. This FAQ may be helpful--

 

Q. Now that I have my EIN, when can I use it to make tax deposits?
A. Based on the information you submit on your application or if you indicate you will have employees, you will automatically be enrolled in the Electronic Federal Tax Payment System—EFTPS—so you can make all your deposits online or by phone. Within a few days you will receive by mail your EFTPS enrollment confirmation, as well as a Personal Identification Number (PIN) and complete instructions for using EFTPS. You will need to wait until you receive your EFTPS information in the mail before you can make a payment electronically. Once you receive your EFTPS Confirmation Package, you can begin making EFTPS payments.

EFTPS is a service provided free by the U.S. Department of the Treasury that allows individual and business taxpayers to initiate all Federal tax payments using the Internet or phone. You can input your tax payments 24 hours a day, 7 days a week using a secure government website or an automated voice response phone system. Refer to Publication 4275, EFTPS Express Enrollment for New Businesses for additional information about EFTPS.

 

 

 

 

 

[VisaDJ 16]

Fantastic - thanks... That's really helpful.

So, in theory, once my employer has the EIN number, they should be able to make all payments to me as usual, and use the EFTPS to make the US tax payments on my behalf, or is this something I'd be expected to do (or is it just a case by case basis, dependent on if the employer wants to do it for you)?

 

Thanks again!

[Wuozopo 4,293]

1 hour ago, VisaDJ said:

Fantastic - thanks... That's really helpful.

So, in theory, once my employer has the EIN number, they should be able to make all payments to me as usual, and use the EFTPS to make the US tax payments on my behalf, or is this something I'd be expected to do (or is it just a case by case basis, dependent on if the employer wants to do it for you)?

 

Thanks again!

If you are considered "employee" then they issue paycheck with US required taxes, Social Security, and Medicare held out. They have to know how much so definitely extra work for them. They submit via EFTPS to IRS. They do not take any U.K. taxes out. I think there is a payroll code for that exemption. You do nothing.

 

IF you are a "contractor", you are responsible for paying in. See previous explanation. 

 

The IRS has clear info on how to determine if you are employee or self-employed contractor. I think you could probably swing it either way. Your company may not want to get so involved in the EFTPS. 

Edited January 12, 2018 by Wuozopo

[VisaDJ 16]

Hi guys, thanks again for all the help! One other quick question here...

 

While completing my P85 online, I am asked:

'Do you want to claim a repayment now?'

I am guessing I should click 'No' here (if I select yes it asks for P45 details, which I obvs do not have, as I am still employed)? If so, do I then just wait for the automated process to kick in where they will most likely issue a refund for last year (or the part of last year when I was in the US)?

Thanks in advance!

[Wuozopo 4,293]

1 hour ago, VisaDJ said:

Hi guys, thanks again for all the help! One other quick question here...

 

While completing my P85 online, I am asked:

'Do you want to claim a repayment now?'

I am guessing I should click 'No' here (if I select yes it asks for P45 details, which I obvs do not have, as I am still employed)? If so, do I then just wait for the automated process to kick in where they will most likely issue a refund for last year (or the part of last year when I was in the US)?

Thanks in advance!

At some point, your employer quits paying taxes into HMRC because at some point you are an American taxpayer. Whenever that "I am a US person"  time is, file the P85 and they will refund to you what was collected extra. So sort it out with your employer about no longer collecting UK tax out of your pay, get the P45, get your money back. It's a bit complicated isn't it? Is this going to be your career or will you be looking for work with a US employer? 

[VisaDJ 16]

6 minutes ago, Wuozopo said:

At some point, your employer quits paying taxes into HMRC because at some point you are an American taxpayer. Whenever that "I am a US person"  time is, file the P85 and they will refund to you what was collected extra. So sort it out with your employer about no longer collecting UK tax out of your pay, get the P45, get your money back. It's a bit complicated isn't it? Is this going to be your career or will you be looking for work with a US employer? 

For the near future - another year or two at least - this will be my career. Tbh I am probably going to hire an expat CPA over here in the US to handle the taxes for this first year... It is making my head hurt doing it myself. I was going to do the P85 just to get a head start but maybe I'll wait to see what the accountant recommends. 

Thanks again for your advice - appreciate it!

[Wuozopo 4,293]

20 minutes ago, VisaDJ said:

For the near future - another year or two at least - this will be my career. Tbh I am probably going to hire an expat CPA over here in the US to handle the taxes for this first year... It is making my head hurt doing it myself. I was going to do the P85 just to get a head start but maybe I'll wait to see what the accountant recommends. 

Thanks again for your advice - appreciate it!

You basically became a US person for taxes when you left the UK. You can get a US tax credit for foreign taxes paid in 2017 but only for the part from summer to end of year. But if you get that  2017 half year refunded by HMRC, then you didn't actually pay foreign taxes and should not claim the credit. Maybe you should pick 1-1-2018 as your break with HMRC to simplify your life. 

Edited February 6, 2018 by Wuozopo