Remote working as contractor in US for UK employer - paying tax

[Alchanphel 14]

Hi all,

 

As the post title says - I'm a UK citizen, now residing in the US and my former employer (based in UK, no offices elsewhere) is keen to offer small-scale contracting work (small one-off contracts for relatively small sums of money). I'd be working remotely from home doing research and writing activities.

 

How does this work in terms of taxation? Is it feasible for the UK employer to pay the agreed amount in USD into my US account, and leave it to me to pay my income taxes and other contributions? And how does the latter work in practice? Do I need to do anything to set up as self-employed?

 

Any helps or advice greatly appreciated.

[aaron2020 11,651]

You need to consult a qualified accountant.    This isn't an immigration issue.  It's a labor and tax issues that's best left to qualified accountants.  

[Mike E 11,739]

28 minutes ago, Alchanphel said:

As the post title says - I'm a UK citizen, now residing in the US and my former employer (based in UK, no offices elsewhere) is keen to offer small-scale contracting work (small one-off contracts for relatively small sums of money). I'd be working remotely from home doing research and writing activities.

 

How does this work in terms of taxation? Is it feasible for the UK employer to pay the agreed amount in USD into my US account, and leave it to me to pay my income taxes and other contributions? And how does the latter work in practice? Do I need to do anything to set up as self-employed?

Pert your timeline, you do not have authorization to work in the USA.

 

The rest of my advice is for when you have both authorization and an SSN. I am assuming your wife is working and you will be filing taxes jointly for 2021:

 

First year (2021)

 

* Have your wife adjust her tax with holding so that she is with holding at least 110% of her 2020 tax liability. 

 

* Save 30% of your gross revenue in a savings account to pay your taxes.

 

* When your taxes are filed in 2022, you will likely owed taxes, but because you wife prepaid at 110% of her previous tax liability you will not owe penalties and interest.

 

Next year (2022)

 

* Have your wife adjust her tax with holding so that she is with holding at least 110% of the tax liability on your 2022 return. Or if you are working a regular wage/salary job in addition to the side hustle, you adjust your tax with holding.

 

 * Save 30% of your gross revenue in a savings account to pay your taxes.

 

* When your taxes are filed in 2023, you will likely owed taxes, but because combined you prepaid at 110% of hour combined  previous tax liability you will not owe penalties and interest.

 

[Wuozopo 4,293]

1 hour ago, Alchanphel said:

Hi all,

 

As the post title says - I'm a UK citizen, now residing in the US and my former employer (based in UK, no offices elsewhere) is keen to offer small-scale contracting work (small one-off contracts for relatively small sums of money). I'd be working remotely from home doing research and writing activities.

 

How does this work in terms of taxation? Is it feasible for the UK employer to pay the agreed amount in USD into my US account, and leave it to me to pay my income taxes and other contributions? And how does the latter work in practice? Do I need to do anything to set up as self-employed?

 

Any helps or advice greatly appreciated.

You can be a “contractor” rather than his “employee”. The boss  paying you does not have to hold anything out of you check including UK taxes. He can pay it in pounds to a UK account if he chooses. You are responsible for paying the IRS. There is no UK tax. 

 

To the IRS, that makes you a self employed contractor (a small business owner) which adds to your current filing a Schedule C (profit and loss from a business) and Schedule SE (self employment tax). It’s not really an extra tax but computation of your Social Security and Medicare contributions based on your contractor earnings. When you’re an employee, those get held out of your paycheck.  Your self employed contributions have to come from you.
 

As a business owner you can take business deductions on schedule C, even if it’s just some office supplies you use as part of your contract work. You probably won’t have much if it’s occasional remote work. Postage to the UK if you had to send hard copies of anything is another example of a business deduction. I only mention this so you can keep records/receipts of things you might want to deduct at the end of the year. 
 

Your UK employer is supposed to get an EIN (Employer Identification Number) from the IRS. Yes they issue EINs to foreigners and it can be done quickly over the phone. Then at the end of the year, he issues a wage statement (IRS form 1099-NEC) to you and reports same to the IRS under his EIN number. That way  the IRS knows how much you got paid and you can’t “hide” the earnings from paying tax on them. NOTE: If the amount you get paid is less than $600 in a year, a wage statement is not required. You still report the money. 
 

We use TurboTax Deluxe to file our taxes each year. We buy the CD and install on our desktop.It will handle Schedule C and SE for you. No need to upgrade to a higher level version they will try to push. I would suggest you not try to tackle the extra by filing online using just your phone. You can easily do this yourself if you are already doing your own taxes.

 

More later. I’m watching baseball. 
 

 

Edited October 8, 2021 by Wuozopo

[aaron2020 11,651]

Just checked OP's timeline.  He recently filed for his EAD last month. 

Since you are adjusting status, you will need an EAD to work for your former UK employer in any capacity.  You can only legally work for your UK employer with an EAD.

[Alchanphel 14]

On 10/8/2021 at 3:26 PM, Wuozopo said:

You can be a “contractor” rather than his “employee”. The boss  paying you does not have to hold anything out of you check including UK taxes. He can pay it in pounds to a UK account if he chooses. You are responsible for paying the IRS. There is no UK tax. 

 

To the IRS, that makes you a self employed contractor (a small business owner) which adds to your current filing a Schedule C (profit and loss from a business) and Schedule SE (self employment tax). It’s not really an extra tax but computation of your Social Security and Medicare contributions based on your contractor earnings. When you’re an employee, those get held out of your paycheck.  Your self employed contributions have to come from you.
 

As a business owner you can take business deductions on schedule C, even if it’s just some office supplies you use as part of your contract work. You probably won’t have much if it’s occasional remote work. Postage to the UK if you had to send hard copies of anything is another example of a business deduction. I only mention this so you can keep records/receipts of things you might want to deduct at the end of the year. 
 

Your UK employer is supposed to get an EIN (Employer Identification Number) from the IRS. Yes they issue EINs to foreigners and it can be done quickly over the phone. Then at the end of the year, he issues a wage statement (IRS form 1099-NEC) to you and reports same to the IRS under his EIN number. That way  the IRS knows how much you got paid and you can’t “hide” the earnings from paying tax on them. NOTE: If the amount you get paid is less than $600 in a year, a wage statement is not required. You still report the money. 
 

We use TurboTax Deluxe to file our taxes each year. We buy the CD and install on our desktop.It will handle Schedule C and SE for you. No need to upgrade to a higher level version they will try to push. I would suggest you not try to tackle the extra by filing online using just your phone. You can easily do this yourself if you are already doing your own taxes.

 

More later. I’m watching baseball. 
 

 

 

Thank you for such an informative and useful reply!

 

I should have added that I am currently awaiting EAD while adjusting status via marriage, and this is thinking ahead to when I have the work permit. Although I am flirting with the idea of taking small-scale remote work sooner on the grounds it is a "gray area" and I married a US citizen (a well-trodden debate already on VJ).

 

Everything you've outlined makes perfect sense, and I would definitely be proceeding as a "contractor" rather than a "employee". Filing Schedule C and Schedule SE all seems very logical.

 

Three further questions from me are:

 

> Does the contractor file quarterly, or just at the end of the year?
 

> Does it matter if the contractor doesn't have an SSN yet?
 

> What happens if the UK employer declines to get an EIN, and doesn't issue form 1099-NEC or report to the IRS at the end of the year? I'm sure in the vast world of international consulting this must happen frequently. How do both the contractor and the IRS then proceed?

 

Thanks!

Edited October 12, 2021 by Alchanphel

[Alchanphel 14]

On 10/8/2021 at 3:26 PM, Wuozopo said:

You can be a “contractor” rather than his “employee”. The boss  paying you does not have to hold anything out of you check including UK taxes. He can pay it in pounds to a UK account if he chooses. You are responsible for paying the IRS. There is no UK tax. 

 

Also just to pick up on this specific point - you state a UK-based employer can still elect to pay me in £ into a UK bank account. Would that not immediately make liable for paying tax in the UK? Or is it not relevant because I've already moved to the US?

 

Thanks!

Edited October 12, 2021 by Alchanphel

[aaron2020 11,651]

18 minutes ago, Alchanphel said:

Also just to pick up on this specific point - you state a UK-based employer can still elect to pay me in £ into a UK bank account. Would that not immediately make liable for paying tax in the UK? Or is it not relevant because I've already moved to the US?

 

Thanks!

These are questions for your accountant.  

Your UK employer should consult their accountant or tax attorney.  

[Wuozopo 4,293]

1 hour ago, Alchanphel said:

Does the contractor file quarterly, or just at the end of the year?

You file a tax return at the end of the tax year. It can be a joint return with your spouse which is what I’ve always found works out in lower tax. The Schedule C and SE in your joint return would  have only your name on those forms because you are the business owner.  The IRS likes to get their money all year and not wait until the end and you owe them a whole lot. So self employed usually send in quarterly estimated tax payments. It’s like an employer holds an estimated amount out of each paycheck to send to the IRS on the employees behalf. As a contractor, that falls to you to make sure they get enough during the year. It is an estimate and doesn’t have to be precise. The actual goal is for you (or you and spouse filing jointly) to try to break even at the end when filing the return. Don’t owe too much and don’t have a huge refund either. It’s kinda impossible to predict how much tax your self employment will accrue when it’s small gigs and especially when you have no experience with filing US returns.
 

Here’s an important concept to know. If you file a joint return,  then the income including your “business” income is all in one big pot with your wife’s income. So if she’s paying in too much held out of her paychecks), that excess covers your part. If she gets a hefty refund each year, then she overpays. The IRS does not need money specifically from you in quarterly payments unless you file Married Filing Separately, in which case you’ve separated the money pots and the wife’s withholding doesn’t go toward helping cover you. Got that? I do not pay in quarter estimated tax payments because my wife pays in an excess and my self employment is pretty small. 
 

I’ll be back in a little bit to tackle your other questions. 

[Wuozopo 4,293]

44 minutes ago, Alchanphel said:

Also just to pick up on this specific point - you state a UK-based employer can still elect to pay me in £ into a UK bank account. Would that not immediately make liable for paying tax in the UK? Or is it not relevant because I've already moved to the US?

You are resident in the US so pay IRS according to the UK-US tax treaty, even if you earned from a UK employer. I’ve read the treaty. There is some code your employer applies to your wages that lets HMRC know no tax and no NH contributions  come out of your wages. I wasn’t self-employed in the UK so not familiar with exactly how that works. Maybe get in touch with payroll or HR to work that out. 

Edited October 12, 2021 by Wuozopo

[Wuozopo 4,293]

4 hours ago, Alchanphel said:

Does it matter if the contractor doesn't have an SSN yet?

You can’t file a tax return without a SSN or ITIN.  You can apply for the ITIN with that tax return. You couldn’t submit a quarterly estimated tax payment. But you might not need to anyway for 2021. There’s not that much time left to earn and the next quarterly payment due date isn’t until 15-Jan 2022, covering earnings September 1 – December 31,  2021. 
 

You can read up on estimated payments in this IRS publication https://www.irs.gov/pub/irs-pdf/p505.pdf

 

 

4 hours ago, Alchanphel said:

What happens if the UK employer declines to get an EIN, and doesn't issue form 1099-NEC or report to the IRS at the end of the year? I'm sure in the vast world of international consulting this must happen frequently. How do both the contractor and the IRS then proceed?

 

It happens in the US too. I have a frequent client who can’t seem to get it together to issue my wage statement. I hounded him a couple of years, then had to have it redone because his bookkeeper got it wrong.  I just reported the income (from my records) on my 2019 tax return without even contacting him for a 1099. No issues. I do keep good records and issue invoices to all my clients. Details of work performed, when payment received, etc. And I report everything to the IRS as one should. 
 

I am not an accountant as Aaron above insists you need. I am just trying to provide you with some concepts to help you along as you learn. The IRS has publications that cover about anything you could want to know, but they are lengthy and could overwhelm you at first look. I do have experience as a UK immigrant and a self employed contractor. My wife has filed her own taxes for around 50 years without a complaint from the IRS. She helps me answer these questions because she’s the more experienced. If you’re like us, you want to know and understand things and not just turn it over to somebody else without understanding how it works. And then some people aren’t a bit interested in the details. There’s all kinds. 

Edited October 12, 2021 by Wuozopo

[An&Je 33]

RE: the UK tax part - if you invoice the company in the UK, they are under no obligation to withhold tax for you as a contractor so they can pay the ful invoice into a UK account or if they are willing and able, a US one. Especially if it's piecemeal work and not a consistent gig (IR-35 can be a ####### as my UK contracting friends are finding out). And if you are on their books as an employee, they can get a £0-tax tax code from HMRC for you as you are based outside the UK. Have you filed a P-85 since you left? This would help as it's proof you're no longer based in the UK for tax purposes.

 

Then, follow the guidance on reporting your income here in the US that you've already been given by the other contributors when you get your EAD and a SSN.