American students at UK universities and the US return

Does a US student at a UK university have to file a US return

Only if the student's own income passes the threshold that applies to them. Living in Britain does not change the rules. A student who can be claimed as a dependant by their parents uses the dependant thresholds in Publication 501, which look separately at earned income, unearned income and the total.

Publication 501 (opens the official IRS page in a new tab) sets out the dependant table. For a single dependant under 65, a return is required once earned income passes $15,750, once unearned income such as interest or dividends passes a much lower figure, or once gross income passes a combined test that mixes the two. Earned income for this table includes taxable scholarship and fellowship grants, as well as wages. A student no one can claim as a dependant uses the ordinary single threshold.

Many students with a modest job and a small savings account fall below these figures. Filing below the threshold can still help: a return reclaims US tax withheld from any US job, records UK tax as a carryover, and starts the IRS time limit for that year. Our post on whether low earners in the UK must file works through the thresholds in more detail.

Is a scholarship for a UK degree taxable in the US

Partly, in many cases. IRS Publication 970 says a scholarship is tax free only for a candidate for a degree at an eligible educational institution, and only to the extent it pays tuition, required fees, and books, supplies and equipment required for the course. Money for accommodation, food and travel is taxable.

The point that catches students at UK universities is the institution test. Publication 970 defines an eligible educational institution as one eligible to take part in a student aid programme run by the US Department of Education, and says this includes certain institutions outside the United States. A UK university that does not take part in those programmes may not qualify, in which case the tax-free treatment may not apply at all. The university's international office can usually confirm its status.

Any part paid for teaching, research or other services required as a condition of the award is also taxable, subject to narrow exceptions. A taxable scholarship goes on Form 1040 (opens the official IRS page in a new tab) and counts as earned income for the dependant filing table. Where the UK has charged no tax on the award, there is no UK tax to credit against it.

• Tuition and fees required to enrol: tax free for a degree candidate at an eligible institution
• Books, supplies and equipment required of all students on the course: tax free on the same basis
• Halls of residence, rent and meals: taxable
• Flights home and other travel: taxable
• Stipends paid for teaching or research duties: generally taxable as pay

Can US parents claim education credits for UK university fees

Sometimes. The American opportunity credit and the lifetime learning credit both require an eligible educational institution, so a UK university qualifies only if it is eligible to take part in a US federal student aid programme. Where it is, parents who claim the student as a dependant generally claim the credit for fees they pay.

The paperwork is the second hurdle. Publication 970 says the credits generally require a Form 1098-T from the institution, whether domestic or foreign. A UK university may not issue one. A credit can still be claimed without the form where the institution is not required to furnish it and the claimant can show enrolment at an eligible institution and prove the payments. Whether that exception fits a given university is a question to settle before filing, not after.

The two credits differ. The American opportunity credit is limited to four tax years for the same student and to students who had not completed the first four years of postsecondary study, and part of it can be refundable. The lifetime learning credit has no limit on the number of years, which suits a postgraduate. Parents living in the UK whose US tax is already removed by the foreign tax credit (opens the official IRS page in a new tab) may get little from the non-refundable parts, so the refundable part matters most.

Can parents still claim a student studying in Britain as a dependant

Often yes. A student under 24 at the end of the year can be a qualifying child, and time away at university counts as a temporary absence, so the student is treated as living with the parents. The student must be a US citizen or resident and must not have provided more than half of their own support.

Publication 501 lists education among the special circumstances that count as a temporary absence, so a year in halls in Edinburgh or London does not break the residency test. It also says a scholarship received by a student is not taken into account when deciding whether the student provided more than half of their own support. A student funded mainly by a scholarship can therefore still be a qualifying child.

Claiming the student matters in both directions. The parents gain the dependant and, where available, the education credit for fees they pay. The student then files, if at all, under the dependant rules and cannot claim their own education credit for those expenses. A student who is not a US citizen or resident cannot be claimed, which matters for siblings with different nationalities. Our post on the child tax credit for American families in Britain covers the credits for younger children.

• Age: under 24 at the end of the year, a full-time student, and younger than the parent
• Residency: time away at university counts as a temporary absence from home
• Support: the student did not provide more than half of their own support
• Citizenship: the student is a US citizen, US resident alien or US national

How part-time work in the UK is taxed for a US student

In the UK, through PAYE in most cases. An employer usually deducts income tax and National Insurance from wages, and income tax starts only above the £12,570 personal allowance. A student whose only income is a job taxed under PAYE usually has no Self Assessment return. Self-employed work, such as private tutoring, generally needs one.

HMRC's guidance on who needs a tax return (opens the official GOV.UK page in a new tab) and on Self Assessment (opens the official GOV.UK page in a new tab) sets the UK rules. A student who works for themselves registers by 5 October after the tax year ends and files and pays by 31 January. Whether the UK taxes the student's other income turns on residence under the Statutory Residence Test (opens the official HMRC page in a new tab), applied to the student's days and ties like anyone else. Our UK Self Assessment service prepares these returns.

On the US side, UK wages are foreign earned income. Any UK tax can be credited on Form 1116, or the pay can be excluded on Form 2555 if the student meets the tests. Self-employment income brings its own US questions about social security, covered in our post on self-employment in the UK as a US citizen.

Does a student's UK bank account need an FBAR

Yes, once the combined maximum value of all the student's foreign accounts exceeds $10,000 at any time in the year. The FBAR has nothing to do with income, so a student with no filing requirement can still owe one. Paying a year's fees or rent through a UK account is often enough to pass the threshold.

The FBAR is filed electronically with FinCEN, not with the IRS and not attached to the tax return, and is due 15 April, extended automatically to 15 October. Every UK current account, savings account and cash ISA in the student's name counts toward the aggregate. Our guide to filing the FBAR online from the UK walks through the form, and the FBAR form page sets out who files.

Parents should check their own position too. A US parent who can sign on the student's UK account has signature authority over a foreign account, which counts toward the parent's own FBAR even though the money belongs to the student. A joint account opened to move fees across counts for each US owner. Our foreign income and FBAR service prepares filings for both generations.

How it works for a postgraduate student in Manchester

Take a US citizen studying for a master's degree in Manchester, under 24, whose parents in Ohio pay most of her costs. She has a university scholarship covering part of her tuition and a monthly maintenance amount, a part-time café job taxed under PAYE, and a UK current account into which her parents send the fees.

Her parents can likely still claim her as a dependant, because her time in Manchester is a temporary absence and the scholarship is ignored for the support test. Whether the tuition part of her scholarship is tax free, and whether her parents can claim the lifetime learning credit, both depend on her university being an eligible institution. The maintenance amount is taxable in the US and counts as earned income in the dependant table, together with her café wages, against the $15,750 figure.

If the fee transfers lift her account above $10,000 at any point, she files an FBAR, and so may a parent who can sign on the account. Her café pay is settled in the UK through PAYE. Our individual tax returns service prepares returns for students and parents together, and the guide for Americans in the UK sets out the yearly cycle.