# US tax form 2555: Income earned during business trips to the USA



## skoog154

Hi All,

Hoping someoine can help me here. I'm a US citizen living and working in the UK an getting paid by a UK-based employer. I make 4-5 business trips back to the USA every year. Unfortunately, the US considers the money I make on these trips (i.e.- the salary apportioned to the days I sped on business trips in the USA) as US source income. This gets reported on form 2555. My understanding is that this US source income will not be eligible for the US foreign earned income exclusion OR for a US foreign tax deduction. Basically this puts me in a situation where I pay 40% tax (PAYE) to the UK on the salary earned during my trips and then an additional 33% to the US. Feels like a penalty for being an expat to me! :mad2:

Is my analysis of the double tax situation above correct? It seems so unfair!!!

Is there any way to prevent this double taxation under a US-UK tax treaty exclusion (i.e.- NOT be taxed in the US for these business trips based on a treaty exclusion OR have the ability to claim the US tax paid back from HMRC based on claiming an exclusion)?

Thanks a lot for the replies.


----------



## lovestravel

We use Deloitte for our taxes but it is my understanding that you are not taxed in the uk for the days you are physically in the USA. I am not sure how it works on the USA tax side. We just filed our 2012 taxes in the USA and didn't spend the entire year in the UK so we paid taxes in both places on our last tax year. Our tax attorney filed extensions due to the complexity of our situation in 2012 which is why our filing was so late. All I know is that my husband has to keep track of all his days within the uk as well as the USA to report to the tax attorney.


----------



## Bevdeforges

I just moved this discussion over to our Expat Tax section - in large part because it is highly relevant to all US expats.

How many days a year (on average) do you wind up being back in the US on business? I think the number is relevant, though I'm not entirely sure how you work the forms for this. Perhaps someone else whose taxes are being done by one of the big accounting firms can help us here.
Cheers,
Bev


----------



## skoog154

Thanks for the comments, folks. Per the query from Bev, I spend about 20 days on business in the US per year.


----------



## Bevdeforges

I know that spending more than 30 days in the US is relevant if you are taking the FEIE based on the physical presence test. And as far as I can tell, your FEIE amount will be reduced by the number of days you spent in the US on business. 

I.e., if you spent 20 days in the US, you'll have your FEIE amount - the smaller of your entire salary or the limit, currently around $97,000 - reduced by 20/365, or a bit over 5%. Depending on what other income you have to report (interest, investments, etc.) that 5% may well be covered by your personal exemption and standard deduction, resulting in no additional taxes.

At least I think that's how the FEIE works. Hoping to flag down someone who has a bit more experience with this.
Cheers,
Bev


----------



## NotanAccountant

I know this is an old thread, but I found it as a result of a very similar problem and after a further six hours of head scratching I thought I would share what I think will work for me.

I work for a UK company (a subsidiary of a US company, but all financials for my business unit are UK based) and I had to attend three meetings in the US during 2017, totalling 10 days time in the US. Aside from questioning whether it can even be argued that I "earned income in the US" when I was paid in £ in the UK and would have been paid no more and no less had I been at my usual desk in the UK (travel happens, but isn't part of the job description), I have concluded that for me it makes no difference and I need not worry about double taxation.

If I am figuring it right, I could spend more than 37 days (ignoring physical presence stuff) in the US at my current UK engineer's salary (between £40k and £50k). Even if I don't deduct the stuff that gets taken from my salary pre-UK-tax (pension and holiday buy back), the total still falls below the $10,400 made up of the $6350 Standard Deduction for a single and the Exemption of $4050 also for filing single.

Further, if the so-called "US income" was more than that allowance, you should be able to claim Foreign Tax Credits with form 1116 since you are being taxed more stiffly in the UK than the US rate. I haven't figured out how this works since I have only ever used the form for interest on savings, and need to fill in another form to cover General Income (the portion of salary from while I was enjoying US weather. Bottom line is that the system is set up to prevent double taxation, but it is a significant head ache to figure out for the first time! 

I had my US filing down to a single day of paper pushing, but those business trips have already doubled that, and I expect it to take four times longer than last year. Once its figured out though it should be easier the next time!

If anyone sees any problems with what I have said, make some noise...or something to get my attention :brick:

Chris


----------



## Bevdeforges

The "technically correct" way to handle it is to apportion your income for the 10 days you worked in the US. But practically speaking, they aren't going to follow up on anything that doesn't make a difference in your ultimate tax bill. (And how and where you are paid has no bearing on any of this if you're a US citizen.)

And, if you use the Foreign Tax Credit to cover those days working in the US, you'll have to apportion your personal exemption and your standard deduction between the income excluded and the income that counts. Add to that the fact that next year (i.e. for 2018) the personal exemption goes away altogether - and you wind up with a larger standard deduction, albeit in total a slightly lower amount you can deduct up front as it were.

Up to you if you want to go Foreign Tax Credit all the way. However, if you do so, you may very well be considered to have "revoked" your election to use the FEIE and you'll be stuck with the FTC for something like 4 or 5 years (or have to ask for IRS permission to return to using the FEIE). 

Personally, I've always preferred opting for the simplest approach to "prove" that I owe nothing to the IRS each year. But you may prefer getting every last penny of benefit. Just don't forget to count in the expense of your time involved.
Cheers,
Bev


----------

