Approximately 700,000 people from the UK currently live in the US, with most of them moving for education or their career. When someone relocates to the US for work for an extended period, they will be permitted to apply for a Green Card, which means that they must pay US taxes.
While there are similarities between the UK’s and the US’ approach to taxation, the American system is generally more complicated. Depending on your situation, you may be required to pay taxes in both the UK and the US, bringing additional complications.
Taxes for UK Citizens in the US
If you hold a Green Card to live and work in the US, you must file your taxes the same as every other American citizen. You may also be required to pay US taxes as a UK citizen if you meet the Substantial Presence Test, meaning that if you spend 31 days in the US tax year in the country, you’ll need to file an IRS 1040 Form. The form will take your global income and tax it, even if you’re no longer living there.
The tax year in the US matches the calendar year, and your taxes must be filed by 15th April. Depending on where you live, you may also be required to file a state tax return, which will tax your income at a variable rate from state to state.
It’s also important to note that US taxes are based on your global income, meaning that you’ll still need to pay US tax on this amount if you profit from selling property outside of the US.
Taxation in the UK When Living in the US
Unlike the US, where you’re taxed on your global income if you qualify, you’re not required to pay British taxes unless you live there for at least 183 days of the tax year, which runs from 6th April to the 5th April.
Avoid being taxed twice.
The main priority for residents living in the US that are UK citizens is ensuring that you’re not taxed twice. If you live in the US and the only income you earn is from a US company, and if you don’t spend 183 or more days in the UK over the year, you’ll be exempt from UK taxes. If you still have an income in the UK while living in the US, though, you may need to investigate if you must pay taxes in both countries. If this is your situation, you must work with a taxation specialist to remove this risk. Employing a tax specialist is preferable to using an automated solution. A standard solution is to file one tax return, and then claim tax credits in the other country when the second tax return is filed.
Social security tax
There’s a treaty called the Totalization Agreement, which means that expats in either the UK or the US living in the other country only pay social security taxes to one country. Still, the amount they pay will contribute to a state pension in both countries.