US Tax Advice for UK Citizens Living in America

Which UK expats are required to file US taxes?

The first fact that UK expats in America must establish is whether they are liable to file US taxes. There are two simple tests for this.

The first is the green card test, which states that anyone who has a US green card, worldwide, is required to file US taxes. So UK expats living in the States who have a green card must file.

Alternatively, if UK expats living in the US don’t have a green card but pass the Substantial Presence test, then they are still required to file a US tax return.

The Substantial Presence test means that someone is physically present in the US for at least:

1. 31 days during the current year, and
2. 183 days during the 3-year period that includes the current year and the 2 years immediately beforehand, counting:
   • All the days you were present in the current year, and
   • 1/3 of the days you were present in the first year before the current year, and
   • 1/6 of the days you were present in the second year before the current year.

If a UK citizen living or working in the US passes either one of these two tests, they are subject to US taxation on their worldwide income. The only exceptions are if they are working for the British government, or if they are in the US on a teacher, training (including sport), or student visa.

Brits living in America may have to pay state taxes too. The rules vary from state to state, so check with the state tax authorities where you live to find out what your responsibilities are.

US Tax filing for UK expats living in America

Anyone who meets the above US tax filing criteria and who earns at least $10,000 a year (or just $400 of self-employment income) is required to file a US tax return.

British expats who are employed by a US employer must fill out form W-4, which lets their employer know how much tax to withhold from their pay check, based on their circumstances.

The US tax return form is called form 1040, and it can be e-filed online. The American tax year is the same as the calendar year, and the filing deadline is 15^th April following the end of the tax year. It’s important not to miss this deadline, as fines for late filing are much higher than those in the UK.

An important difference between the US and UK tax systems is that the US tax system allows for multiple ways to file, in terms of whether you claim a standard personal deduction, or claim specific deductions, and what credits you choose to claim. The way you choose to file can make a significant difference to how much tax you owe, so it’s important for anyone other than UK expats with the most straightforward circumstances (e.g. a single source of income, no property or investments etc.) to seek the advice of an accountant with a specialism in expat tax filing.

Many UK expats living in the US may have to file both US and UK tax returns (due to either having income in the UK, or qualifying for tax residence through the number of days spent in both countries), in which case they may have to claim a provision from the US/UK tax treaty, or otherwise claim credits in one country for taxes paid in the other.

Furthermore, a second tax UK/US treaty exists called a Totalisation Agreement that is designed to ensure that UK expats living in America (and Americans living in the UK) only pay social security tax (i.e. National Insurance tax) contributions in one of the two countries rather than both, with the contributions counting towards state pension entitlement in both.

Another US filing requirement that affects many UK expats living in America is the requirement to report bank and investment accounts located outside the US (e.g. in the UK) if the total of the combined balances of their accounts exceeds $10,000 at any time in a year. This requirement affects many UK citizens living in the US who have savings, stocks, or private pension plans back in the UK. UK expats with qualifying accounts who are US tax payers are required to report them in the US by filing an annual Foreign Bank Account Report (FBAR). If their financial assets outside the US total over $200,000, they may also have file an extra form (form 8938).

We would strongly recommend that all UK expats living in the US other than those with the most simple circumstances consult an expat tax specialist at their earliest opportunity to ensure that they become compliant in most beneficial way possible for them.

Of course, before that you need to move to America, if you haven’t already. Just below there are some useful links that will help you with your move!