Time to Talk - US Taxation – employees working in the US

Thursday 7 December

Timings: 10-11am

With universities sending increasing numbers of employees to the US, the need to ensure adherence to federal and state tax rules becomes critical. The interaction between tax and visa type as well as tax treaty provisions, present global mobility teams with complex compliance challenges. Added to this, the differences in federal, state and local taxation regimes complicate matters and universities often default on their obligations,  potentially leading to significant financial exposure. To avoid IRS and state audit activity, it is important to have a good understanding of US taxation as it pertains to US touching globally mobile employees.

The act of having an employee perform duties in the US, regardless of whether they are permanently based there or not, is likely to create a responsibility for the employer from a reporting and employment tax perspective. Generally speaking, employees who are US tax residents are subject to wage reporting and income tax/social security withholding on all wages paid by their employers. Non-US tax residents are subject to reporting and withholding on wages for services performed in the US. For most higher education employees going to the US, visa type can affect their tax residency status so it is important to understand the employee's fact pattern to ensure compliance, as even those employees may generate a reporting and/or withholding obligation for the employer.

So while many university academics may be able to benefit from using a J-1 visa to work in the US this does not necessarily exempt the individual, and the university as their employer, from all reporting and tax withholding obligations in the US, particularly in respect of state obligations.  It is therefore important to understand on a case by case basis what the requirements may be and anything which can be done to mitigate these.

The United States has bilateral income tax treaties with over 65 countries and many treaties provide specific benefits for J-1 aliens under the Teachers/Researchers article of the applicable treaty. For UK-US purposes these provisions are contained in Article 20A. Each treaty provision is unique and must be examined to determine the applicable treaty benefits for J-1 teachers, researchers, trainees, and students. These types of treaty benefits, which may exempt certain income from U.S. tax, generally apply only for a specified period of time and have strict qualifying conditions.

Each US state has its own tax provisions, and in addition, their rules often do not align with the federal treatment of employee wages. This can mean that in certain instances, while there may be no federal exposure to tax either under domestic law or under treaty, the state may still levy tax.

Please join us for our talk on “US taxation and the implications for employees working in the US” on 7 December 2023. We will cover the US federal and state rules as well as treaty provisions, with specific focus on how they relate to higher education employees. We will also go through some recent case studies from the sector. 

This event will be recorded, and the recording will be uploaded to our website after the event (usually within a week). Please check the Webinars page to find the recording.  The recording will be retained for a period of approximately 2 years, or where the information becomes irrelevant/ outdated.