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Where Taxpayers and Advisers Meet

uk split year and us bonus taxation

jeffer729
Posts:2
Joined:Fri Sep 15, 2017 11:13 am
uk split year and us bonus taxation

Postby jeffer729 » Fri Sep 15, 2017 11:22 am

Hi,

I'm moving from the UK to USA (Illinois) in November. My employer will pay me a (contractually guaranteed) bonus in March 2018 for this year. I'll qualify for UK split year treatment. I understand that the UK will also want to tax me on that bonus for the portion of the year that I was UK resident. I'm trying to figure out whether to subscribe for EIS and so trying to figure out how the whole thing is going to get taxed.

One scenario I see is:

I pay UK tax on my income to November. I pay US and Illinois tax on the post-November income and the bonus. The UK then taxes me on the portion of the bonus which is taxable (how does it calculate that? From start of calendar year, tax year, or employment (which began in July)?) But I can offset the US tax paid (but how is that calculated, its paid on the total income + bonus, and is only finalised at the end of 2018, which could be after my 2017/2018 UK filing deadline.) In this case claiming the EIS credit would reduce my UK tax liability without impacting the US.

Or:

I pay UK tax on my income to November and the portion of the bonus which is UK-attribute. I pay US Tax and state tax on my post-November income plus the bonus, but can offset the UK income tax paid (but how is this calculated? Again there is tax paid on UK income pre-Nov and UK income post-Nov, do they just calculate an average tax rate? Or the marginal tax paid for the marginal bonus income?) In this case I could see that claiming EIS credit could reduce the tax credit that I could claim in the US (I assume I can't offset the EIS credit against the pre-November income only.)

I appreciate that the EIS thing makes the whole thing more complicated, so even if someone could just explain who gets first dibs on what pieces of income, I feel like I'd understand the whole thing a lot better.

My employer's paying a big 4 accountant to provide tax advice but they don't seem to be able to answer even the simpler question.

Thanks

atif1980
Posts:3
Joined:Sun Sep 03, 2017 2:39 pm

Re: uk split year and us bonus taxation

Postby atif1980 » Sat Sep 16, 2017 3:16 pm

Hi Jeffer279

Scenario 1 would apply. Your bonus would be pro-rated based on that part of the calendar year that you were in the UK. So for example, assume the performance period for the bonus is 1 January to 31 December and you are leaving the UK on 1 November, 10/12 of the bonus paid to you in March would be taxable in the UK. 2/12 would be taxable in the US. The US can't tax the bonus which relates to the period you were in the UK.

Your employer will only process the bonus relating to the UK via the UK payroll and would normally apply a 0T tax code i.e. your bonus would be taxed at 20%/40%/45% depending on the amounts. If there is an under/overpayment of tax on your bonus, this would be rectified when you file your UK tax return.

Hope this helps.

Aman

atif1980
Posts:3
Joined:Sun Sep 03, 2017 2:39 pm

Re: uk split year and us bonus taxation

Postby atif1980 » Sat Sep 16, 2017 3:54 pm

sorry wanted to add at the end of my message that Aman Sood who is ex Big4 has helped me on international tax matters. His username is AmanSood and he regularly responds to queries on this forum and may be able to provide further clarification if needed.

DavidTreitel
Posts:271
Joined:Thu Aug 16, 2012 4:31 pm

Re: uk split year and us bonus taxation

Postby DavidTreitel » Sat Sep 16, 2017 4:45 pm

Most folks think that most EIS is a PFIC and thus unsuitable for a US resident. Have you done enough pre-US immigration planning?

jeffer729
Posts:2
Joined:Fri Sep 15, 2017 11:13 am

Re: uk split year and us bonus taxation

Postby jeffer729 » Sun Sep 17, 2017 2:11 pm

Thanks Atif, I was just under the impression that if the bonus is paid while in the USA then some states would expect to be able to tax it?

David - my understanding is that I own shares in the companies themselves rather than a fund through EIS, and that therefore it shouldn't be subject to PFIC treatment. I've not invested in EIS for long ,so I could be wrong here, but it sounds like a lot of EIS Investments were structured as funds in the past and are now more customarily structured so that one has a series of investments rather than a percentage interest in a fund. In the latter case I don't believe one should be subject to PFIC, but happy for you to tell me I'm barking mad. (My accountants also think I should be fine from a PFIC pov but given their inability to answer my first, easier question, I'm a bit hesitant to take them too seriously...)

DavidTreitel
Posts:271
Joined:Thu Aug 16, 2012 4:31 pm

Re: uk split year and us bonus taxation

Postby DavidTreitel » Wed Sep 20, 2017 1:32 pm

Who is doing the quarterly PFIC testing on each EIS to ensure it is not a PFIC, or have the EIS companies made a check the box election?


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