Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.
Hello, I can assist you with your US tax questions. I believe you are asking if you can deduct the alimony payments made to your non-resident wife on your US tax return...am I correct?
If so, since your wife is a permanent green card holder, she is taxed as a US resident regardless of where she lives. Only if she rescinds her status will she be able to claim that she is a non-resident of the US
As such, you would deduct alimony paid to her, and she would pick the amount up as income on her US tax return.
Ok thank you, XXXXX XXXXX she have to rescind her status if she is changing her residency? And if she does, does she need to file a US tax return or would she then be subject to UK policy, which I believe does not tax alimony income?
No, she would not have to rescind her green card, unless she just doesn't want it anymore. She does not have to live in the US to be a green card holder
Let me look at the UK tax treaty with the US. Typically, alimony paid from a US citizen to a nonresident alien is taxed by the US at a flat rate of 30%, unless there are tax treaty benefits provided.
Ok, but is there a connection between the green card and her tax status? Is there a scenario where she does not need to file a US tax return and pay US taxes?
If she is a green card holder, she is taxed just like you and me.
She would not file and pay a US tax return if she rescinds her status and does not have "substantial presence" in the United States
Ah that was what I wanted to know. So is it possible that I can deduct the alimony payments and she does not pay taxes on it by virtue of being a UK resident subject to UK alimony tax law? Both of our children are US citizens, soon to be 21, so she could always get another green card on that basis. I am just trying to figure out if I should be recommending that she rescind her status for now, go on the UK tax scheme and potentially receive alimony tax free. Sorry for taking up so much time.
Don't worry about the time at all ... you paid a decent sum for our service so you deserve as much time as you need to answer your question.
It's a tricky issue, and one that I am double checking before I tell you.
Yes it seems it is pretty tricky. I have been told that alimony is part of the US/UK tax treaty but I can't seem to get a firm answer on this particular situation
Alimony is covered in Article 17 item 5 of the tax treaty. It reads: Periodic payments, made pursuant to a written separation agreement or a decree of divorce, separate maintenance, or compulsory support, including payments for the support of a child, paid by a resident of a Contracting State to a resident of the other Contracting State, shall be exempt from tax in both Contracting States, except that, if the payer is entitled to relief from tax for such payments in the first-mentioned State, such payments shall be taxable only in the other State.
In English, this means that because alimony is taxable income in the US - according to the tax treaty - it may be taxable fo r her in UK only - and is not subject of US withholding.
To claim the tax treaty benefits - and avoid withholding - she needs to provide you with form W8BEN - www.irs.gov/pub/irs-pdf/fw8ben.pdf
You can still deduct the payment from your taxes, even if she is not taxed in the UK on that income.
A fabulous article about alimony paid to non resident aliens can be found, HERE
I can still deduct the payment from my taxes even if she is not taxed.....this is very good news. If I am understanding it correctly....
Yes, and it's explicitly stated in that article I linked to, written by a law firm
But... for clarity... this can only happen if she rescinds her green card?
and is footnoted with the tax code Section 215(a)
Well, regardless if she keeps her green card or not the tax situation is the same for you
It's just whether she is taxed or not that is the question.
If she keeps it, she's taxed in the US on that income
Well if we are discussing what her after tax income will be so it will make a significant difference if she gives up the green card and has UK status. That is what I needed to know. Thank you very much for your help. And the good news.
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Sure will. Thanks again.