Basics of US Taxation for British Expatriates

Bradley Hamilton serves as a senior wealth manager at Blacktower Financial Management (US), LLC in New York. Bradley Hamilton specializes in assisting British expatriates in navigating various regulatory and tax issues that come with cross-border wealth.

The United States is home to more than 1.3 million British expatriates. Although the language and lifestyles in the US are similar to that in the UK, tax matters have massive differences. There are multiple ways of filing taxes in the US, unlike in the UK where the tax system is relatively straightforward. Different tax rates are also applied, depending on the transaction, whether it is Federal, Municipal. Penalties amounting to up to 25 percent of the tax due may be charged for failing to pay the proper taxes at the right time.

Moreover, It is the expatriate’s responsibility to file the W-4 Form if he or she is employed in the US. In the form, the expatriate will inform his or her employer how much tax is deductible to him or her. However, if the expatriate employed in the US is earning for an American company, he or she will be taxed at source and will have to file a tax return with the Internal Revenue Service.

If the expatriate is unsure whether he or she is required to file a tax return, he or she can go through the Substantial Presence Test, the counterpart of the UK’s Statutory Resident Test. If through the Substantial Presence Test the expatriate is deemed a permanent US resident, his or her worldwide income will be subjected to US tax laws. This same rule applies to expatriates who have obtained US citizenship. April 15th is the deadline for filing tax returns in the US. The workload in the IRS increases while April 15 approaches. To avoid incurring penalties, expatriates are advised to file their tax returns at earlier dates.