# US tax return upon returning to the UK



## EdAinscow (Mar 17, 2017)

Apologies if this has been raised elsewhere, but I can't find similar post after a good time spent trawling.

My wife and I are UK citizens who lived in the US for 5 years up until June 2016 (obtaining a green card for the last year and a half). We have now moved back to the UK and renounced are green card immediately after arriving back. 

I now need to file my tax returns for the US for 2016. I left my US employer in April 2016, and started working for a UK company whilst being resident in the UK. So for a while I had earnings whilst living in the US which had UK tax deducted.

My understanding is that I should fill out a 1040 for my worldwide income for the period to june and then a 1040NR for my earnings after returning to the UK. However, H&R Block are recommending that I nominate myself to be taxed as US resident for the whole year.
I'm not sure this right since neither me or my spouse were US residents or citizens at the end of the year, which seems to be the main criteria for doing this.

If I go down the route of the 1040/1040NR filing, I've read everywhere that I can't file as Married Filing Jointly. Is this the case though for the portion of the year I was resident (i.e. the 1040 part of the year?) If I can't file jointly, I'm going to taxed at a much higher rate than I normally would be for the first half of the year. Also what does my wife need to do? She had no income at any point during the year. 

Any help would be gratefully received.

Thanks!


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## iota2014 (Jul 30, 2015)

> I go down the route of the 1040/1040NR filing, I've read everywhere that I can't file as Married Filing Jointly. Is this the case though for the portion of the year I was resident (i.e. the 1040 part of the year?) If I can't file jointly, I'm going to taxed at a much higher rate than I normally would be for the first half of the year.


You shouldn't be double-taxed on the UK earnings. Either the US or the UK should give you credit for foreign tax paid. To me it sounds like the UK should give relief, as you were genuinely resident in the US while earning the money. If so, you need to apply to HMRC for relief for foreign tax paid (once you've paid it) and thus get a refund of the withheld tax.

As for the tax accountants, it sounds like they want you to file a dual-status return, which it appears to me (speaking as a non-expert) is probably correct. You need to file the 1040NR because you were NRA at the end of the year. You put down your earnings on the 1040 and then "port" the information to the 1040NR, and attach the 1040 to the 1040NR as a kind of worksheet to show where the money actually came from. Is that what they're suggesting? 



> Also what does my wife need to do? She had no income at any point during the year.


She could file the 1040 / 1040NR anyway, just to put her departure it on record. But it probably doesn't matter. They're unlikely to notice or care, is my guess.


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## iota2014 (Jul 30, 2015)

See https://www.irs.gov/individuals/international-taxpayers/taxation-of-dual-status-aliens 

and

https://www.irs.gov/uac/about-publication-519


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## Moulard (Feb 3, 2017)

iota2014 said:


> As for the tax accountants, it sounds like they want you to file a dual-status return, which it appears to me (speaking as a non-expert) is probably correct.


 Alternatively they could be misconstruing the substantial presence test.


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## EdAinscow (Mar 17, 2017)

Thanks Iota2014 for your replies.

I'm not so worried about the UK tax return. I can handle that and will just complete based on my income whilst in the UK (and hopefully get a decent sized rebate).

For the US return, I've read the IRS docs and that's what has led me to the conclusion that the accountants are doing it wrong.

They have prepared our tax returns using just the 1040 and then declaring my income whilst I was resident in the UK with a 1116. They are proposing the elect to be treated as a resident for the whole year (based, I think, on clause 6013 (g)). The problem here is that at the end of the year neither my wife or I were resident in the US and we are not US citizens so I don't think it applies.

My reading is that we should file the 1040 & 1040NR. What I get confused about is how to fill in the 1040. Do I work through the calculations as if I was married filing jointly? even though the 1040NR is going to be a single person filing? If I fill out the 1040 as a single person I will end up paying a whole lot more tax than if it was a joint filing.

I can't believe that I'm a particularly complicated case, just someone returning back their country of origin, but H&R block don't seem to have a clue what to do.


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## iota2014 (Jul 30, 2015)

EdAinscow said:


> For the US return, I've read the IRS docs and that's what has led me to the conclusion that the accountants are doing it wrong.
> 
> They have prepared our tax returns using just the 1040 and then declaring my income whilst I was resident in the UK with a 1116. They are proposing the elect to be treated as a resident for the whole year (based, I think, on clause 6013 (g)). The problem here is that at the end of the year neither my wife or I were resident in the US and we are not US citizens so I don't think it applies.


Just had a look at 6013(g). I agree - 6013(g)(2) seems to rule that out. But I am no expert. (Edit - confirmed at https://www.irs.gov/individuals/international-taxpayers/nonresident-spouse-treated-as-a-resident)



> My reading is that we should file the 1040 & 1040NR. What I get confused about is how to fill in the 1040. Do I work through the calculations as if I was married filing jointly? even though the 1040NR is going to be a single person filing? If I fill out the 1040 as a single person I will end up paying a whole lot more tax than if it was a joint filing.


I hate to say this but maybe that's their intention? But someone more knowledgeable about this than I may suggest a different explanation.


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## iota2014 (Jul 30, 2015)

See Publication 519, p.32, "Restrictions for Dual-Status Taxpayers"


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## EdAinscow (Mar 17, 2017)

Thanks again for your help.

I've read that page about a dozen times over the past few weeks. It's still as confusing as ever. 

For example it contains phrases like...



> "All income for your period of residence and all income that is effectively connected with a trade or business in the United States for your period of nonresidence, after allowable deductions, is added and taxed at the rates that apply to U.S.citizens and residents"


Which makes it sound like for the residential portion I can use the MFJ rules for calculating my tax which would be fine. 

But then there are other statements like...


> "If you are married and a nonresident of the United States for all or part of the tax year... you must use the Tax Table column or Tax Computation Worksheet for married filing separately to figure your tax on income effectively connected with a U.S. trade or business. You cannot use the Tax Table column or Tax Computation Worksheet for married filing jointly or single."


Which confuses me. I think it means for the non-resident portion as it refers to "income effectively connected to the US" which you declare on the 1040NR (as opposed to all income on the 1040), but it doesn't explicitly say this so it's ambiguous.

I'd be totally fine as being taxed as a MFJ resident to June and then taxed 30% on my US related income after June (as this is pretty much 0 anyway).


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## iota2014 (Jul 30, 2015)

Publication 519 and the 1040NR instructions both state pretty clearly that you can't file MFJ for your dual-status year. It doesn't seem ambiguous to me. If you calculate your tax for the "resident" part of the year using the MFS or Single table, you presumably _will_ get taxed at the same rate as a USC would get using the same status.

However, I may of course be mistaken.


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## Bevdeforges (Nov 16, 2007)

There is an optional election for NRA (non-resident aliens) who were resident only part of the year to be treated as full-year residents. But you usually hear of this coming into play for the NRA spouse of a US citizen in the year of arrival in or departure from the US, and a quick check of Pub 54 (overseas taxpayers) indicates that one of the spouses MUST be a US citizen in order to take the election.

It is possible the accountants are thinking of this, though as you have said, it appears to be a mistake on their part. I would challenge them on this point.
Cheers,
Bev


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## EdAinscow (Mar 17, 2017)

Thanks Bev - I've challenged them so I'll see what they say.

wrt married filing jointly, vs. married filing singularly, I interpreted that the 1040NR was your return and this had to be done as single. It doesn't state that the 'statement' which is the 1040 has to be calculated as married filing single - which is what I would do if I were still in the US. Although maybe I'm just arguing for a loophole that doesn't exist.


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## Bevdeforges (Nov 16, 2007)

I'm not super familiar with the 1040NR as it is, but I don't believe there is an option to file one of those jointly. (Could be wrong on that... never really looked into it as I'm stuck with a 1040 or 1040A for the foreseeable future.)
Cheers,
Bev


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## iota2014 (Jul 30, 2015)

EdAinscow said:


> Thanks Bev - I've challenged them so I'll see what they say.
> 
> wrt married filing jointly, vs. married filing singularly, I interpreted that the 1040NR was your return and this had to be done as single. It doesn't state that the 'statement' which is the 1040 has to be calculated as married filing single - which is what I would do if I were still in the US. Although maybe I'm just arguing for a loophole that doesn't exist.


I see what you mean but it does seem a stretch. The risk being (as I see it), that you probably *are* required to calculate the resident-alien tax using the Married Filing Separately table (why else would they go to such lengths to specify who can and who cannot file jointly) and therefore if you use the MFJ table the automatic processing may register an anomaly and shuttle your return down a different path from the path it would have taken if no anomaly had been spotted.

However, that's purely my view, based on nothing more than (a) knowing what (elderly, non-heuristic) systems typically do, plus (b) my understanding of the instructions. H&R Block might be able to comment?

FWIW, my guess is that they don't want you to do what you want to do: claim the benefit of USC rates, while simultaneously claiming NRA treaty benefits on the same income.


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## EdAinscow (Mar 17, 2017)

Hmmm... Just ran through some calculations based on the 1040. I would have to pay about 70% more in federal tax alone if I file as married filing separately vs. married filing jointly. This turns a healthy rebate into a considerable bill.


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## iota2014 (Jul 30, 2015)

EdAinscow said:


> Hmmm... Just ran through some calculations based on the 1040. I would have to pay about 70% more in federal tax alone if I file as married filing separately vs. married filing jointly. This turns a healthy rebate into a considerable bill.


How does the MFS result compare to the UK tax that was withheld?


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## EdAinscow (Mar 17, 2017)

Thanks all for you help so far.

iota2014 when you said...


> claim the benefit of USC rates, while simultaneously claiming NRA treaty benefits on the same income


Actually I don't want to claim NRA benefits on my income whilst in the US. Ideally I want to be treated as a USC whilst I was living in the US, with the right to MFJ but also the responsibility that I declare my global income with no treaty benefits. Then when I left I want to be treated as a NRA for the remainder of the year, which means there is no claim on my UK income I earned whilst living in the UK.

I'll see what H&R block get back with but the difference in MFJ to MFS is a six figure sum so I'm worried.


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## EdAinscow (Mar 17, 2017)

iota2014 said:


> How does the MFS result compare to the UK tax that was withheld?


The difference is about 3x bigger (and that doesn't even factor in state tax)


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## iota2014 (Jul 30, 2015)

EdAinscow said:


> Thanks all for you help so far.
> 
> iota2014 when you said...
> 
> ...


It's the treaty that obliges the UK to provide relief. The UK has taxing rights because it's UK source income; the US has taxing rights because you received the income while you were US-resident. Residence wins, so the UK concedes and offers relief.

However, I was only guessing at the possible reason for the restriction. There may be a different explanation.



> I'll see what H&R block get back with but the difference in MFJ to MFS is a six figure sum so I'm worried.


Yes, wait and see why they think you could file as US-resident for the whole year. It seems like they're mistaken, but see what they say. Sounds like it could save you a lot of money if it somehow turns out that they're right.


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## EdAinscow (Mar 17, 2017)

H&R Block are quoting Code Section 301.7701(b)(4) as a means to justify the resident filing. They say they have done this before for people in our situation. I hope they are right.

It still strikes me as 'unamerican' that from a tax perspective I'd be better off single than having a wife and kids to support if we went down the MFS route.
Alternatively if I'd held onto my green card until the end of the year ...


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## iota2014 (Jul 30, 2015)

EdAinscow said:


> H&R Block are quoting Code Section 301.7701(b)(4) as a means to justify the resident filing. They say they have done this before for people in our situation. I hope they are right.


Interesting! I thought they might quote 301.7701(b)(2) - the "closer connection" angle. I didn't get as far as "Residency time periods".

Good to know that it wasn't just an elementary mistake on HRB's part!



> It still strikes me as 'unamerican' that from a tax perspective I'd be better off single than having a wife and kids to support if we went down the MFS route.
> Alternatively if I'd held onto my green card until the end of the year ...


Just be thankful you're an NRA and not an expat USC.


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