Green card holder physically present in US but employed, paid and taxed in UK

[land_speed]

US/UK advice needed as I become more and more aware of how complicated my situation is:

I am a US Greencard holder through my wife as of July 2020. In 2020 I filed as a dual tax resident on my own through turbo tax that seemed fairly straightforward. For the 2021 tax year, I have spent over 183 days in the US while employed by a UK company, paid into a UK bank account, and have UK tax withholdings on my salary (PAYE). If anyone can point me to an expert in this area that would be fantastic!

My key questions/concerns are:

Can I claim a credit on my UK-paid taxes through the US UK dual tax treaty?

If not can I have to claw this PAYE tax back from the UK HMRC and pay the IRS?

Should my employer have been withholding tax for the IRS or doing any other sort of reporting?

As I am physically present in the US could my employer owe tax?

Anything else anyone has come across in a similar situation?

Any and all help is appreciated. Thanks

[ErnieS0]

Green card holders are considered US residents. Your worldwide income is taxable. You can claim a credit for tax paid to the UK on income taxed by both countries.

Where do I enter the foreign tax credit (Form 1116) or deduction for 2021?

How you receive your money (UK bank account) does not affect your tax obligations, except you may fall under foreign bank reporting requirements.

Report of Foreign Bank and Financial Accounts (FBAR)

Your employer would not have to withhold US tax or due any sort of reporting if they are not conducting business in the US. If they were, they would need a US tax ID number.

Whether your employer owes US tax depends on what they are doing business in the US. You don't say what you do.

See 26 CFR § 1.864-4 - U.S. source income effectively connected with U.S. business.

[land_speed]

Thank you very much for your reply Ernie, 

The work is business development in the renewables industry. We are not yet conducting work directly in the US but that is the ultimate goal when we set up a US branch. 

Can I assume that for now, my desk-based work on behalf of my UK employer does not count as "doing business in the US" even if I am physically present in the US while I work?

Thanks again 

[DianeW777]

No, you are physically present doing business in the US and you are a green card holder.  You must report your worldwide income as indicated by our awesome Tax Expert @ErnieS0, then take the foreign tax credit for tax paid on the same income to the UK.

Please update if you need further assistance.

[land_speed]

Thanks for your reply Diane, 

Yes, I understand @ErnieS0 's advice for my own situation and I will file this income personally (likely through an expert) but I am still not clear if my work counts as "doing business in the US" from the perspective of my UK employer and if they would have to file. 

The 26 CFR § 1.864-4 - U.S. source income effectively connected with U.S. business is very confusing. The company does not have a physical entity yet set up in the US. 

Thanks 

[DianeW777]

It depends.  When the business is set up and operating in the U.S. then there is effective connection without doubt. When we look at the example everything is taking place when the branch has been established in the U.S.  Currently, there is no branch in the U.S. according to your earlier statements. Depending on whether your activity is equal to having a branch established in the U.S. will determine the decision.

26 CFR § 1.864-4 Example: (Dates were changed below)

M, a foreign corporation which uses the calendar year as the taxable year, is engaged in the business of manufacturing machine tools in a foreign country. It establishes a branch office in the United States during 2022 which solicits orders from customers in the United States for the machine tools manufactured by that corporation. All negotiations with respect to such sales are carried on in the United States. By reason of its activity in the United States M is engaged in business in the United States during 2022.The income or loss from sources within the United States from such sales during 2021 is treated as effectively connected for that year with the conduct of a business in the United States by M. Occasionally, during 2021 the customers in the United States write directly to the home office of M, and the home office makes sales directly to such customers without routing the transactions through its branch office in the United States. The income or loss from sources within the United States for 2021 from these occasional direct sales by the home office is also treated as effectively connected for that year with the conduct of a business in the United States by M

In reference to the social security taxes and whether your employer is required to pay those to the US please see the following.

The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be considered when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country.

• US International Social Security Agreements
  • United Kingdom: If your employer sends you from one country to work for that employer or an affiliate in the other country for five years or less, you will continue to be covered by your home country and you will be exempt from coverage in the other country.