# Dual citizen tax implications



## MagicK (Jan 30, 2021)

Hello,
Hoping someone can help me understand the tax implications being a dual up/us citizen.

This is theoretical currently, I‘d like to really understand how this works so here are a few scenarios.

Scenario 1
Work for US (remote) company with no UK presence
I live I’m UK for entire year but also hold residency through drivers license etc (no property in California)

scenario 2 same as above but with owning property, does that make any difference?

scenario 3 - same as scenario 1 but with residency in Florida

scenario 4 - same as 3 only again owning a property

I chose these as I understand California is a sticky state for tax and Florida has no income tax, or Nevada?

how would these scenarios differ?

to delve I’m further I have read about people asking employers to pay them as contracters vs via a salary.
‘how does that differ and finally I read somewhere in my research here that if you are paid via up you are protected by us employment laws and not the us/residency ones... is that true? Would that still be the case with self employed or only if the Company has a UK presence.

thank you for reading and I look forward to learning more about this.

I also wanted to add in and ask... if I worked solely for a UK company and lived in the Uk but still held dual citizenship, how are the us taxes calculated is it only fed or state too? And if both and I was resident in a state with no income tax like florida or Nevada then how would I be taxed?

thank you


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## Bevdeforges (Nov 16, 2007)

MagicK said:


> Scenario 1
> Work for US (remote) company with no UK presence
> I live I’m UK for entire year but also hold residency through drivers license etc (no property in California)


Having a California drivers license does not give you "residency" in California. In this case, you would file a US return and a UK return (or at least be on the hook for UK taxes). Where your employer is based has no bearing on the situation.



> scenario 2 same as above but with owning property, does that make any difference?


Assume you mean owning property in California. Basically, any income derived from the property (rent, proceeds from the sale of part or all of the property, etc.) would be subject to CA state tax, but probably as a NR.



> scenario 3 - same as scenario 1 but with residency in Florida


No difference. (And simply holding a Florida drivers license does not give you residency in Florida.)



> scenario 4 - same as 3 only again owning a property


Again, no difference.



MagicK said:


> to delve I’m further I have read about people asking employers to pay them as contracters vs via a salary.
> ‘how does that differ and finally I read somewhere in my research here that if you are paid via up you are protected by us employment laws and not the us/residency ones... is that true? Would that still be the case with self employed or only if the Company has a UK presence.


If you are paid as a contractor, then you are responsible for paying your own taxes and social insurances on your income based on where you are located while doing the work. Usually, you wind up having to establish some form of business entity where you are, though in the UK you can establish yourself as "self employed" or something like that. 



MagicK said:


> if I worked solely for a UK company and lived in the Uk but still held dual citizenship, how are the us taxes calculated is it only fed or state too? And if both and I was resident in a state with no income tax like florida or Nevada then how would I be taxed?


As a US citizen, you are always on the hook for filing US Federal income taxes. You don't necessarily have a state residence once you are resident overseas - though with a few states, that can take a bit of maneuvering to arrange. But generally, your primary tax obligation is to the country in which you live (or are physically present in while doing the work for which you're being paid). See IRS publication 54 for all the gory details of filing from overseas.


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## MagicK (Jan 30, 2021)

Thank you, I believe there is some confusion when I say residency. By that I mean where I am registered so it surely would make a difference... if my US address was in CA or in FL surely the tax implications would vary?


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## NickZ (Jun 26, 2009)

US states have their own rules that are a mystery to me but owning or having available a home means you may be considered domiciled. Keeping a DL would further move you in that direction. Tax residency can end up being a balance of everything.

You may find employers wanting to treat you as a contractor. It's there benefit to not consider you an employee.

BTW IIRC the UK tax office has some information on determining tax residency. That would give you there idea.


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## Bevdeforges (Nov 16, 2007)

It really isn't simply a matter of "where you are registered." As a US citizen, you have the right to vote (at least in Federal elections) based on your last address in the US. Being registered to vote does NOT make you a resident of whatever state that is (part of the law allowing overseas citizens to vote). But each and every state has its own laws regarding residency. (As does each and every country - and the basis for "residency" can be different than that for "tax residency" - just to add a bit more excitement to the issue.)

And most countries these days will limit your right to drive on your old US license to about a year after you have taken up residence. So, there is the rather significant issue of whether your old US license is actually valid in the UK any more.

And to add to Nick's comments - many US employers prefer to try to keep overseas employees on the local (i.e. US) payroll if they can because it's easier for them. If you go "contractor" on them, it won't take long for you to figure out that paying your own taxes and social insurances (the required ones) is usually MUCH more expensive than paying out for the usual round of US "payroll taxes." Generally, if you go contractor, you should renegotiate your billing rate if you expect to wind up with roughly the same "take home pay" you had as a US employee. Just a simple example, look at what you pay as an employee for FICA (US social security) - something like 7.5% of your gross pay. As a contractor, you are considered self-employed and therefore you pay both halves (yours and the employer's) so US "self-employment" tax runs about 15%, or double the employee part.


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## 255 (Sep 8, 2018)

MagicK -- You are right that California (along with New Mexico, South Carolina & Virginia,) is one of the "sticky" states. All states have different rules as to who is classified (and how to extricate yourself from being a) tax resident. These states are particularly egregious in demanding former residents remain in their tax fiefdom. Some states, you move and you're done -- others are more aggressive. My recommendation would be to extrapolate yourself from California, as soon as practicable (including ditching the CA DL.) My own parents were required to, and paid, Colorado income taxes for over a dozen years, while living overseas. When I was young, I changed my own residency & domicile to Washington, as soon as I could. Professionally, I have dealt with literally dozens of folks that have had difficulties fighting California's unjust tax system. California is infamous for not even following their own laws. The following states have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. 

Florida is one of the easier states to establish domicile -- you need to file a "Declaration of Domicile" and do things necessary to "prove it." Here is a random "checklist" from PNC Bank: Florida_Domicile_Checklist_WM.pdf (pnc.com) Many give advice to move to a "non-tax" state, temporarily, before expatriating. Cheers, 255


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## MagicK (Jan 30, 2021)

Thank you 255, that’s really informative


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## Moulard (Feb 3, 2017)

The other part of the equation not already discussed are how sourcing rules are impacted by employment status ...

Lets work through your scenario with a bit of a hypothetical..

Lets say you move out of CA, to break CA domicile and thus CA tax residency... all good you think to yourself.. 
Your wages are now, considered, say FL sourced..
You move to the UK...
Your wages are now considered UK sourced.
Technically your employer now has UK Payroll tax, NI and income tax withholding requirements
To avoid those they put you on as an independent contractor you set up a business and you continue to work for them..
All of a sudden those payments may once again be considered CA sourced
Why?

The sourcing rules for employees is actually different that the souring rules for independent contractors, businesses and corporations.

CA is one of the many US states that have moved towards sourcing rules for corporate and business taxpayers that uses a market-based sourcing method instead of a cost-of-performance method. Under a market-based approach, sales of services are assigned to the state in which the services or benefits of the services are received or delivered, or where the customer or marketplace is located.

Specifically, even if you never sets foot in California again, if you are performing services for a California customer as an independent contractor, you have an economic nexus with the state and therefore are likely to be considered business in California for income tax purposes.

If you work working for them as a contractor, but performing work for their clients outside of CA, that is a different matter as a a recent California Office of Tax Appeals (OTA) held.


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## MagicK (Jan 30, 2021)

Thank you, what if the company is entirely remote but holds some sort of hq in Colorado? All employees are mostly US based but all over from east to west coast? Would the tax implications differ then if ca ties were somehow severed?

Also since I’m intrigued by how this all works, let’s say person A is dual citizen, gives up all ties in US and moves to UK...takes a job in UK. Would the us state tax be taken from the last known place of residence or how would that work?


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## 255 (Sep 8, 2018)

MagicK -- If a Colorado company has employees across the U.S., they will issue a W-2 at tax time that show both Federal and state withholding (for the states that have an income tax.) If you live in and are successfully domiciled in Florida, working for a Colorado company, you should no longer have a California nexus (assuming you successfully cut all ties to CA.)

As to your last question -- all states are different. As I stated earlier, some states allow you to leave without fear -- other states will expect you to pay taxes, even if you leave the U.S. (under the theory that you are only overseas temporarily.) Also the reason to leave from a no tax state! If you become a dual citizen, nothing changes. U.S. citizens are always responsible to pay income taxes, on their worldwide income. If you are living and earning your income in the UK -- you can exclude your earned income from the UK on your U.S. tax return and/or take a tax credit to what taxes you paid in the UK. Renunciation is basically your option to get out of the U.S. system. Cheers, 255


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## Moulard (Feb 3, 2017)

MagicK said:


> Thank you, what if the company is entirely remote but holds some sort of hq in Colorado? All employees are mostly US based but all over from east to west coast? Would the tax implications differ then if ca ties were somehow severed?


Every state has rules that are slightly different. Only because it is a lazy Sunday afternoon and I am procrastinating mowing the lawn....

Colorado....
If you were an employee... this would apply 

*



(A)

Click to expand...

*


> _Telecommuting_. A Nonresident employee who telecommutes from a location outside of Colorado is not working in Colorado and the employee's income from such work is not Colorado-source income.


but if you were a contractor... this would apply...



> *(ii)*_Independent Contractor._ Business income of an independent contractor is sourced depending on whether the income is from a purely personal service or is from other than purely personal service. Purely personal services consist of services performed by an individual independent contractor with only incidental contributions from either other individuals or property. Such services include, but are not limited to, legal, accounting, architecture, or other professional services.
> .....
> *(A)*_Purely personal service income._ If an independent contractor's Business income is earned by performing purely personal services and the purely personal services are performed both within and outside Colorado, the Nonresident shall apportion such income in the ratio of the number of hours the individual performed such services in Colorado to the total number of hours the individual performed such services in the year.


and on to your next question..


> Also since I’m intrigued by how this all works, let’s say person A is dual citizen, gives up all ties in US and moves to UK...takes a job in UK. Would the us state tax be taken from the last known place of residence or how would that work?


The US maintains the right to tax its citizens on their global income by virtue of the benefits that citizenship grant by virtue of the Tait v. Cook supreme court ruling that sustained citizenship based taxation.

So in this case, you would still have a US Federal Tax Requirement up to and until you expatriated (the extreme end of giving up all ties to the US)

US States define tax residency either on the basis of domicile or on residence. At a State level you would be taxed on your global income until such time as you were no longer domiciled or resident (depending on the state)

CA is a Domicile state...

Domicile tends to be harder to break than residency because an individual can have only one domicile at any given time, but can have several residences. 

Domicile is the place where an individual has his or her true, fixed, permanent home and principal establishment. Domicile requires both physical presence in a particular locality and the intent to make this locality one's permanent abode. In short, you remain a CA tax resident if your absence is temporary or transitory. And that is the rub... it can be difficult to prove that your absence is not temporary or transitory. You can live in the UK for years and years, but if you intent to return to CA, then you may not have broken domicile.


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