Paid in March for work done last year, in a country you have left

Any amount earned in one period and paid in a later one. A bonus is the everyday example. Long-term incentive plans, deferred cash awards and share awards all sit in the same family, with longer gaps between the work and the money.

Wherever you did the work. The treaty allocates salaries, wages and other similar remuneration to the country where the employment is exercised, subject to a narrow exception for short visits.

That means a bonus earned over a year in London stays a British item, even if it lands after you have moved to New York.

Payroll rarely reflects this. The system pays and withholds where you are now, which is why apportionment falls to the return.

With a rule written for exactly this. The instructions to Form 2555 state that foreign earned income received in one year for services performed in the previous year can be excluded in the year of receipt, if and to the extent it would have been excludable in the earlier year.

So a payment arriving in 2026 for work done abroad in 2025 looks back to the 2025 position and the 2025 cap.

Using the rule is not automatic. You attach a statement to Form 2555 showing how you worked the figure out.

That statement is what turns a defensible position into a documented one.

Because PAYE settles it for you, in the period your employer pays you. Your employer applies the code, deducts the tax and reports it, and the bonus appears in that year's figures.

Simplicity at the payroll end creates work at the return end. The British year of payment and the American year of earning frequently differ.

Special rules apply where someone arrives or leaves part way through a year, and that timing causes most of the trouble.

Look at where you did the work across the period the award covers. Workdays in each country is the usual measure, and it needs a record rather than a recollection.

Start from the plan rules or the award letter, which state the performance period.

Then count workdays in each country across that period. A bonus earned over a year in which you moved in September splits roughly two thirds and one third, subject to the actual days.

Keep a calendar as you go. Reconstructing two hundred workdays after the fact is slow and never convincing.

It follows the payroll rather than the analysis, so over-withholding in one country is common. A bonus paid by a British employer after you move to America usually suffers PAYE in full.

Reclaiming that involves the British system rather than the American one, and it takes months.

Tell both payrolls about the move as early as you can. Prevention here is far cheaper than recovery.

Ask for the payslip that shows the deduction, not just the net figure. The credit claim depends on proving what each country actually took.

Considerably, because the credit has to match income to the tax paid on it. A bonus taxed in Britain in one year and reported in America in another creates a mismatch that the credit rules have to absorb.

Carryback and carryforward exist for unused credits on Form 1116, which softens the timing problem without removing it.

So model the two years together rather than each in isolation. Our comparison of the exclusion and the credit explains when each relief does more work.

Equity is the other half of most senior packages, and it behaves differently from cash. The two countries recognise value at different moments, so one vesting event can fall in different years on each side.

British schemes with tax advantages generally have no American equivalent, which is where the cost appears.

Our articles on restricted stock units and employee share schemes cover the patterns we see most.

It deserves its own advice rather than a paragraph. The British treatment of carried interest has been through legislative change, and the American analysis depends on the fund documents rather than on any general rule.

We will not summarise a moving target here. Anyone with carry should have the partnership agreement read alongside both tax positions.

What we can say generally is that the two systems characterise the same receipt differently, and the mismatch is where the planning sits.

A signing bonus relates to future work, which points the allocation forward rather than back. A buy-out compensating you for an award forfeited at a previous employer points backwards instead.

The label on the payment matters less than what it replaces. Read the offer letter closely.

Where a payment straddles both, split it on a reasoned basis and document the reasoning at the time.

Clawback terms deserve the same attention. A repayment in a later year raises its own question about the tax already paid, and the two systems do not unwind it the same way.

Contributions follow their own agreement, separate from the tax treaty. A bonus paid after a move can still attract National Insurance in Britain depending on the arrangement.

The social security agreement decides which country collects on employment earnings, not the treaty article covering employment income.

Our note on the US-UK totalisation agreement explains how that allocation works.

Then the two-country split disappears and the two-year split remains. A payment for last year's work still arrives in this year's payroll, so the British year of payment and the American year of service can differ.

Usually that changes nothing, because the exclusion or the credit covers the salary either way.

Occasionally it matters a great deal. A year in which you crossed a cap, or one in which your residence status changed, makes the timing decisive.

These follow their own rules in both countries, and they are not simply large bonuses. Britain treats part of some termination payments favourably, within limits, while America generally treats the whole amount as compensation.

Furthermore, the allocation question returns. A payment for ending a job performed in Britain relates to British work.

So read the settlement agreement before signing it, because the wording drives the treatment. Changing the label afterwards rarely works.

In our practice, termination payments produce more disputes than any other single item in a package.

Three things, gathered as you go. The plan rules or award letter, the payslip showing what came off, and a simple workday calendar.

Additionally, note any change of residence with its date. That single line resolves most apportionment questions later.

Typically our clients who keep a workday calendar answer an apportionment query in one email. Those who do not spend a weekend on flight confirmations and diary entries.

Take these in order, ideally when the award letter arrives rather than when the money does.

It can, especially where no American tax comes off at source. A large payment in March raises the year's liability, and the instalment system expects you to keep pace with it rather than settle up in April.

So recalculate after any significant award rather than sticking with January's estimate.

Our note on estimated tax while living abroad sets out the quarterly timetable and how the safe harbours work.

Two questions save most of the later work. Which performance period does this award cover, and which payroll will pay it?

Ask them by email so the answer exists in writing. Reward teams answer both routinely and rarely volunteer either.

A third question helps if you are moving: will the company operate a modified payroll arrangement? Some large employers do, and it changes the withholding considerably.

None of this requires explaining your tax position to your employer. The facts are enough.

Take an illustrative package. An American works in London through 2025, moves to New York in September 2026, and receives a bonus in March 2027 for the 2026 performance year.

The bonus relates to a year worked mostly in Britain, so most of it stays a British item. His US return reports the whole payment and then applies the prior-year rule to the part that qualifies, with a statement attached.

His British employer deducted PAYE in full on the payment date. The figures are illustrative; the two-country, two-year split is the part that needs the calendar.

First, reporting a payment wherever payroll happened to pay it. Second, missing the prior-year rule and losing the exclusion on a large payment.

Third, using the rule without attaching the statement, which turns a good position into a weak one. Fourth, counting calendar days rather than workdays.

Fifth, telling payroll about a move after the bonus run. Sixth, treating share awards and cash bonuses as though one analysis covered both.

Seventh, assuming an amended return fixes everything cheaply. It usually can, though the British recovery and the American amendment run on separate timetables and neither moves quickly.

We start from the plan rules and the workday record, because those two documents decide the allocation. Then we apply the prior-year rule where it helps and prepare the statement that supports it.

Our treaty relief service covers the allocation and the credit ordering, and we prepare both returns so they agree on the split.

Send us the award letter and your travel dates and we will tell you how the payment divides.