Professional Tax Advice is Advisable Before Leaving for the US - Mazars - Ireland

Question: I recently won the US green card lottery and would like to work in that country, but I have concerns about the tax implications.

I am a self employed computer programmer and I make my living selling software. As a green card holder, I think I would be tax-resident in the US from the moment I entered the country, and would need to pay taxes there. Would I be taxed twice on the same income in both Ireland and the US?

Answer

The extent of your liability to Irish income tax depends on your residence, ordinary residence and domicile status in Ireland. On the basis that you will spend more than 183 days in Ireland this year, you will be treated as tax resident in Ireland for 2011.

If you have been tax resident in Ireland for 2008, 2009 and 2010, you will be treated as being ordinarily tax resident in Ireland for 2011.

You will remain ordinarily tax resident in Ireland until you have been non-resident for three consecutive tax years. It is assumed that you are domiciled in Ireland. For 2011,you will be tax resident and domiciled in Ireland.

Therefore, you will be liable to Irish income tax on your worldwide income. From 2012 to 2014, you will be treated as non-resident, but ordinarily resident in Ireland for tax purposes. This means you will be liable to pay Irish income tax on your worldwide income, with the exception of:

a) income from a trade or profession, no part of which is carried on in Ireland, and

b) other sources of foreign (non-Irish) income not exceeding €3,810 in the year.

From 2015 onwards, if you remain in the US, you will be treated as non-resident and non-ordinarily resident in Ireland for tax purposes.

This means you will be liable to Irish income tax only on income arising in Ireland.

Secondly, as a foreign national working in the US, you will be treated as a resident alien of the US for tax purposes if you meet either the ‘‘green card test’’ or the ‘‘substantial presence test’’ in a calendar year.

If you are a resident taxpayer in the US, you are taxed on worldwide income earned during your period of residence. In addition to federal income and social security taxes, foreign nationals who work and/or are living in the US also have to contend with state taxes.

If you are non-resident in the US for tax purposes, you are taxed in the US only on income from US sources. There are limited circumstances in which the US will also tax certain types of foreign source income earned by non-residents.

American tax rules are complex, and not everyone fits neatly into a certain category such as resident or a non-resident. Unfortunately, it is possible for someone to be a US resident and a non-resident in the same tax year. Individuals in this category are referred to as ‘‘dual-status taxpayers’’.

If you are a dual-status taxpayer, you are treated as a non-resident for one portion of the tax year and as a resident for the other portion of the year. Your income for the entire year needs to be allocated between the residency and non residency periods.

You will be taxed on the worldwide income you receive in the period of residence. Only your US source Income will be taxed in the period of non-residence.

Up to this point, the focus has been on Irish and US domestic tax law. It is not uncommon for an individual to find that the income they have earned in Ireland or the US is subject to tax in both countries.

Ireland has a Double Tax Agreement (DTA) with the US, the goal of which is to eliminate the double taxation of income that can occur between the domestic tax laws of both countries.

The US will allow a resident or citizen of the US, a credit against the US tax liability for Irish tax paid.

Conversely, Ireland will allow a credit for US tax against any Irish tax arising on the same income.

The existence of the Ireland/ US DTA should provide you with relief from double taxation.

Given the complexity of the situation, it is advisable to seek professional tax advice in both countries before leaving Ireland and starting to work in the US.

This article appeared in the Sunday Business Post and was written by Ken Killoran is a Tax Manager with Mazars.