# Report US 1099 Income to US or UK?



## blaklite (Feb 2, 2017)

My wife and I are living in the UK, however she works as a contact consultant for a UK company. Her income is reported to her on a 1099. I'm trying to decide if it makes more sense to report the 1099 income to the UK or to the US. I figured the difference this year, and there seemed to be very little difference between the two options (of course including the Foreign Tax Credit in the calculations). Is this how we should expect it to work every year as her income fluctuates up and down? Is there a common strategy that would make the most sense?

Thank you!


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## Bevdeforges (Nov 16, 2007)

Assuming that you and your wife are both US citizens, you are supposed to report your worldwide income to the US every year - no matter where in the world you live. See IRS publication 54 for more information on how this works.

But if she has received a 1099, then the IRS will be expecting to see that income reported on your US tax returns (along with all your other income). 

Actually, she should be able to take the Foreign Earned Income Exclusion for that "earned income" - and if you're working a regular job in the UK, you can also claim a full FEIE against your employment income, too. Simpler than using the FTC. FEIE is form 2555, which FTC is form 1116.
Cheers,
Bev


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## DavidMcKeegan (Aug 27, 2012)

The UK also taxes on worldwide income if you are considered tax residents, so you may also have to legally report her 1099 income to the UK as well. This link to the HMRC website will help explain if she should be reporting that to HMRC as well as the USA (the US is a given, then needs to be reported no matter what).

https://www.gov.uk/tax-foreign-income/residence

I hope this helps!


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## lat19n (Aug 19, 2017)

Bevdeforges said:


> Assuming that you and your wife are both US citizens, you are supposed to report your worldwide income to the US every year - no matter where in the world you live. See IRS publication 54 for more information on how this works.
> 
> But if she has received a 1099, then the IRS will be expecting to see that income reported on your US tax returns (along with all your other income).
> 
> ...


I am SO confused by all this. Doesn't the concept of domicile and length of stay come into the picture ? If we own our one and only house in Mexico and live here 365 days a year - doesn't Mexico claim our worldwide income ?

I came across this info recently :

"2. Taxation of Mexican Resident Individuals
Mexico imposes an income tax at graduated rates of up to 35% on the worldwide
income of individuals who are residents of Mexico. 223 "Resident" is presumed to include all
Mexican nationals, subject to proof to the contrary. The income tax also includes foreign
nationals who maintain a home in Mexico, unless they are resident in another country for
more than 183 days and can prove tax residence in that other country."


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## Bevdeforges (Nov 16, 2007)

The US is somewhat unique in that they claim the right to "citizenship based taxation." So that means that, no matter where you live in the world, they still expect you to at least send in a tax return, declaring your worldwide income (and in most cases, claiming the various tax treaty things that are designed to alleviate double taxation). Most countries use "residence based taxation" - which means that if you live there, you declare and pay taxes there.

We "US persons" are "just lucky" - and have to at least file in both our country of citizenship and in our country of residence. 
Cheers,
Bev


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## lat19n (Aug 19, 2017)

Bevdeforges said:


> The US is somewhat unique in that they claim the right to "citizenship based taxation." So that means that, no matter where you live in the world, they still expect you to at least send in a tax return, declaring your worldwide income (and in most cases, claiming the various tax treaty things that are designed to alleviate double taxation). Most countries use "residence based taxation" - which means that if you live there, you declare and pay taxes there.
> 
> We "US persons" are "just lucky" - and have to at least file in both our country of citizenship and in our country of residence.
> Cheers,
> Bev


Perhaps it is my years of parsing meaning in specs etc working as a programmer - but to me the word INCOME would imply earned and unearned income. It would seem that may have been a mistake (for me).

I posted this earlier on a different forum - so please excuse me if you have already read this...

"We had a sit down with a CPA from a very large international tax accountant today. I pointed out that we do not have Mexican RFCs and have never filed a Mexican return. We have never had any Mexican 'earned' income. I showed him that we have reported ALL our interest income for both Mexico and the US on our US returns. I mentioned that I file for a foreign tax credit for whatever ISR is withheld inside Mexico.

His responses : No we do not need RFCs - even when we become Mexican citizens and even if/when we sell our Mexican home. As long as we have no Mexican 'earned' income. No we do not need to file Mexican returns because we have no earned income in Mexico. He also said that I should not have reported our Mexican interest income to the US. In fact he was very interested in our letting him claw back the interest we had shown the US - which on last years return was enough to buy a nice new car. 

I am just an old man who searches for answers on the internet. I am not a professionally trained accountant. What we were told today disagrees with what I have read - but hey - maybe we should just keep doing what we have been doing (right or wrong). 

He did promise to come to our rescue should SAT ever come knocking on our door."


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## Bevdeforges (Nov 16, 2007)

I don't know how Mexican taxes work. But on the US side, you only have to look at IRS Publication 54 to see that the US taxes its citizens on the same basis as if they were US resident, no matter where in the world they live.

Practically speaking, many expats take the approach your CPA advised - report only the "relevant" income to the respective tax authority. And, until you get into the upper tax brackets, that is likely to work. The IRS is under funded and under staffed, so they won't bother auditing any return that doesn't offer some promise of some undeclared or under calculated taxes. (Well, other than the odd "random" return selected for a compliance audit.)

It's also the case that if you over-declare on your US returns and wind up paying too much because you were unaware of some provision in the tax code, you are very unlikely to get a refund or even be advised of your error by the IRS. So, you play the game and you take your chances.
Cheers,
Bev


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## lat19n (Aug 19, 2017)

Bevdeforges said:


> I don't know how Mexican taxes work. But on the US side, you only have to look at IRS Publication 54 to see that the US taxes its citizens on the same basis as if they were US resident, no matter where in the world they live.
> 
> Practically speaking, many expats take the approach your CPA advised - report only the "relevant" income to the respective tax authority. And, until you get into the upper tax brackets, that is likely to work. The IRS is under funded and under staffed, so they won't bother auditing any return that doesn't offer some promise of some undeclared or under calculated taxes. (Well, other than the odd "random" return selected for a compliance audit.)
> 
> ...


I downloaded IRS Pub 54 and searched on the word 'interest'. The main focus seems to be the interest a person may be subject to should they not be in compliance with US rules. Nowhere was the topic of tax-residents of a foreign country and taxes due the US on passive income (bank interest income) addressed.

Yet I ask myself - why does the IRS/treasury have such an interest in FATCA if they don't think they are entitled to something ? Might they really be interested in a person's 'holdings' and not really on their passive 'earnings' ? 

Mexico is particularly interesting because our passive interest is broken out as real and nominal. I pay Mexico NO extra taxes on our passive income over the 0.6% held at 'source' (when earned). YET - for the last 6 years I have paid Mexico its 0.6% (as mentioned), take that amount as a tax credit on my US taxes, AND then report the NOMINAL interest to the US (on a fabricated 1099-INT I create myself). 

Does anyone have a current IRS phone number for expat US citizen support ?


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## Bevdeforges (Nov 16, 2007)

lat19n said:


> Does anyone have a current IRS phone number for expat US citizen support ?


There never has been an IRS help line for expats. Back when they had IRS offices overseas (only in Europe and Beijing, though), the IRS overseas staff was actually very helpful - though understandably mainly for the countries in which the offices were located. But if you'll note, even the official IRS help lines disclaim any responsibility for the answers they may give you.

OTOH, unless the amounts involved are major, they don't seem to do much with whatever forms you do send in unless they are obviously "wrong" or attempting to avoid paying taxes where some might be due.
Cheers,
Bev


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## lat19n (Aug 19, 2017)

I just called the IRS @ 267-941-1000 and had a rather lengthy conversation with a very knowledgeable person.

As a US citizen I am required to report ALL (active and passive) worldwide income to the IRS. I am supposed to do exactly what I outlined I am doing above. I explained to her the advice I received last week from an international tax CPA and she said I could 'write' the IRS for a written explanation.

BUT - perhaps the most interesting part of the conversation dealt with FEIC. We have lived here for five years and my wife worked those years for a European company. She had no earned income in Mexico nor the US. This woman said (basically) - it makes no sense but you should have taken the FEIC. I guess that is water under the bridge but those monies amount to the cost of a decent sized HOUSE.


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## Bevdeforges (Nov 16, 2007)

By FEIC are you referring to the Foreign Earned Income Exclusion? (FEIE) There is also the option to take the Foreign Tax Credit (FTC) for taxes paid to a foreign government on income earned while outside the US.

However, the fact of working for a European company really doesn't come into play here. What counts is where your wife was doing her work. As long as she was outside the US long enough to qualify under the physical presence test or the bona fide residence test, her earned income would be eligible for the FEIE.
Cheers,
Bev


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## lat19n (Aug 19, 2017)

Bevdeforges said:


> By FEIC are you referring to the Foreign Earned Income Exclusion? (FEIE) There is also the option to take the Foreign Tax Credit (FTC) for taxes paid to a foreign government on income earned while outside the US.
> 
> However, the fact of working for a European company really doesn't come into play here. What counts is where your wife was doing her work. As long as she was outside the US long enough to qualify under the physical presence test or the bona fide residence test, her earned income would be eligible for the FEIE.
> Cheers,
> Bev


Actually - I think what comes into play here is that my wife had no earned income in the US nor in Mexico over the years - and our NOT claiming the FEIE was a HUGE mistake on our part - from the horse's mouth.

It is not intuitive - but my wife had no Mexican earned income - no Mexican firm paid her for services - and at the same time she had no US earned income for the same reason. It seems wrong BUT it is right.

Edit : my point is - I always assumed - and it always felt wrong to me - that if we did not pay the US for earned income we needed to pay Mexico for earned income - and THAT was a BIG bad assumption.


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## lat19n (Aug 19, 2017)

Bevdeforges said:


> By FEIC are you referring to the Foreign Earned Income Exclusion? (FEIE) There is also the option to take the Foreign Tax Credit (FTC) for taxes paid to a foreign government on income earned while outside the US.
> 
> However, the fact of working for a European company really doesn't come into play here. What counts is where your wife was doing her work. As long as she was outside the US long enough to qualify under the physical presence test or the bona fide residence test, her earned income would be eligible for the FEIE.
> Cheers,
> Bev


I'm sorry - you are right. I misread your comment. 

Since she was working outside the US for 183+ days she was entitled to the exemption. My mistake was that my logic told me if the monies were exempted from the US return they would need to show up on a Mexican return. That was bad logic.


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## Bevdeforges (Nov 16, 2007)

lat19n said:


> I'm sorry - you are right. I misread your comment.
> 
> Since she was working outside the US for 183+ days she was entitled to the exemption. My mistake was that my logic told me if the monies were exempted from the US return they would need to show up on a Mexican return. That was bad logic.


That's what lots of folks assume at first - but tax returns are pretty much separate things if you happen to be in the position of having to file in two or more countries. (Basically, only a curse for US expats, who have to file from overseas as "tax resident.") And, unless one side or the other has some reason to suspect you of wrong doing, it's really rare that anyone would ever compare one country's tax returns to the other. (Besides, little things like "taxable income" vary so much from one country to the next.)
Cheers,
Bev


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## lat19n (Aug 19, 2017)

So it looks like a person can file amended returns going back 3 years or so. Not sure if the date of 4/15 is used for expats in that calculation - or the extension period.

I edited our returns (using TurboTax) for 2017 and 2016 and assuming 2015 would be very similar... We would stand to recoup _around_ $42,000 (total) for those three years if we filed for the FEiE. If we could refile for 2014 - make that amount more like $59,000 USD.

What do you think ? If we were to go that route we might let a professional handle that for us. What is a fair price to pay such a professional to do that ?


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## Bevdeforges (Nov 16, 2007)

For the prior year returns, you'd need to file 1040X rather than re-filing the 1040s. But if you've done that yourself so far, there's not a lot of need to pay someone (big bucks, I might add) to file the 1040X forms for you.

Take a look at this before you decide: ttps://www.irs.gov/site-index-search?search=1040X+instructions&field_pup_historical_1=1&field_pup_historical=1
Cheers,
Bev


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