Should my husband apply for a tax exemption on his UK-earned income if, as a condition of maintaining his US Green Card, he must submit a tax return as a US resident?

[tazeen]

My husband and I have been living in the United Kingdom since mid-June 2016. My husband is a UK citizen, and I am a US citizen. He has a US Travel Permit giving him permission to work abroad and retain his US Green Card, so long as he submits a US Tax return. He has had his Green Card for less than two years, so it is still a 'conditional' Green Card, and we are returning to the US to apply for the removal of these conditions in June 2017.

We are unsure as to whether or not he should be applying for a US tax-exemption for his UK earned income, which totaled around $22000 in 2016. On the one hand, he has paid UK tax on this income, and there is a UK-US tax treaty in effect. On the other hand, he does not seem to qualify as a foreign resident under the Bona Fide Resident Test or the Physical Present Test. Furthermore, given his Green Card situation, it is not clear if he should even be trying to qualify for US tax exemption under the terms of either of those tests. 

We have been looking at the various options that TurboTax Deluxe mentions regarding our situation - and it mentions other options like applying for a tax deduction by other means, or paying US tax this year and amending our 2016 return next year.

Thank you for your time and advice

[TaxGuyBill]

If he does not qualify for the Foreign Earned Income Exclusion, you can use the Foreign Tax Credit to reduce the double taxation on that income.

[pk]

Assuming that your husband will continue to earn in the UK till you come back to the USA and perhaps still have from the UK later,  would suggest  (a) filing 2016 return  with extension  -- this will allow you to qualify for the foreign earned income exclusion -- 12 month  period from June 2016 thru Jun 2017  ( need 330 days  in any 12 months without touching USA ), claim Foreign earned income exclusion ratebly for TY 2016 and do the same for 2017.; or (b) file as is for 2016 and then amend  once you have qualified  on physical presence. Note that  if you are going to conitue to have foreign  passive income , then foreign  tax credit may be useful. Whether you choose to take advantage of foreign earned income exclusion or collect  foreign tax credit or take tax deduction, depends very much on your current situation and future plans. The most popular path is to take advantage of the Foreign Earned Income Exclusion.

Hope this helps -- if you have more questions on this please feel welcome to add to this thread