Me and my wife will be filing as "married filing jointly" for tax year 2006 as RESIDENT ALIENS based on passing the substantial presence test. We left the US for UK in June and have lived here ever since ( I cannot claim closer connection to UK based on applications made for change of status in USA during 2006). Now, my question is - because I am filing as a resident alien, do I have to report income earned in the UK through sources having absolutely no connection with the US what so ever ? I was going to file taxes based only on the W2 sent from my previous US employer for the half-year that I earned wages there, and the 1099 forms from banks for earned interest.

Can someone with the knowledge or similar experience help please.

If you and your wife choose to file jointly as residnet aliens, then, yes, you MUST report the U.K. income. Assuming you paid U.K. taxes on that income, you can claim a Foreign Tax Credit (Form 1116) for those atxes as well.

Do NOT file just on the W-2s. The IRS is catching on to that ploy and IS coordinating with foreign tax authorities to compare incomes in each country. If they find you intentionally evaded taxes, it could be grounds to revokle your visa. Tell me, is it worth the risk?

If you need professional help to file, contact me at [email protected].

I definitely do not want to break any rules/laws where taxes are concerned. I started filing tax returns without declaring UK wages out of ignorance not intentionally. I will modify it quite soon. As I have paid taxes on the UK wages as well, I believe I can claim a dollar-for-dollar credit for the taxes paid here. But what about the National Insurance portion of the UK taxes- can that be claimed as well ? If it can, then I think I know what to do with my return ( 1040 + 1116)

I forgot to ask earlier. When I read the rules for declarnig and claiming foreign wages and tax credits, I am allowed to do it only if I pass a "bondafide residence" test, which I would not because I have only lived in the UK for 6 months. I am not sure if my situation is still clear. Look forward to your help again Atlanta Tax Expert! Thanks for all your useful information every time.

Sarah:

You CANNOT claim the National Insurance portion of the taxes; just income taxes.

The formula used on Form 1116 is somewhat complex and does not usually produce a dollar-for-dollar credit. Some credit IS generated, just not dollar for dollar.

If you paid income taxes to U.K. then are required to pay taxes on the same wage, you can claim the tax credit on foreign wages. That is the basic principle behind the Foreign Tax Credit to begin with.

If you need my professional help, contact me at [email protected].