Statutory Maternity Pay and any enhanced maternity pay from a UK employer belong on the US return of an American living in the UK, and the UK income tax deducted from them under PAYE can be set against the US tax through the foreign tax credit (opens the official IRS page in a new tab). The open question is whether SMP counts as earned income. The IRS has not addressed it, and the answer affects the foreign earned income exclusion and the refundable child tax credit. Days spent in the UK on leave still count towards the physical presence test.
This post is for US citizens and green card holders employed in the UK who take maternity, paternity or shared parental leave. It extends our guide to US and UK tax returns for Americans in the UK and covers how the UK pays and taxes these amounts, the two ways the US return can read them, the credit, the exclusion, the child tax credit and the day count for the exclusion.
How the UK taxes maternity pay and enhanced pay
In the UK, Statutory Maternity Pay is paid by the employer in the same way as wages, weekly or monthly, with income tax and National Insurance deducted. Enhanced maternity pay under a company scheme is paid alongside it through the same payroll. For the employee, both simply appear on the payslip as taxable pay.
GOV.UK sets out the shape of SMP. It runs for up to 39 weeks, starting at a percentage of average weekly earnings for the first six weeks and then dropping to a weekly flat rate, or the earnings-related figure if that is lower, for the rest. Statutory Paternity Pay and Statutory Shared Parental Pay are run through the same PAYE system (opens the official GOV.UK page in a new tab).
Two details matter for the US return. First, the employer usually reclaims most of the statutory amount from HMRC, and small employers can reclaim all of it with an addition, so the money comes from the employer's payroll but is largely funded by the state. Second, UK income tax legislation lists Statutory Maternity Pay, Statutory Paternity Pay and Statutory Shared Parental Pay among taxable social security benefits, even though they are collected through payroll. The year-end P60 shows the statutory payments separately within total pay.
- Statutory Maternity Pay: up to 39 weeks, paid through payroll with tax and National Insurance deducted
- Enhanced or occupational maternity pay: paid by the employer under its own scheme or the contract
- Statutory Paternity Pay and Statutory Shared Parental Pay: listed with SMP in the same UK tax legislation
- P60: shows statutory payments as a separate figure inside total pay for the tax year
Whether statutory maternity pay counts as wages for US tax
The IRS has published nothing on Statutory Maternity Pay itself, so its US character depends on how the payment is analysed. SMP is income either way and goes on the return. What is unsettled is whether it is pay for personal services, which is how the IRS defines earned income, or a social benefit that is not earned income.
The first reading treats SMP as compensation. It is paid by the employer, through payroll, only to employees who meet length of service and earnings conditions, and it is worked out from the employee's own pay. The IRS guidance on foreign earned income (opens the official IRS page in a new tab) defines earned income as pay for personal services performed, such as wages or salaries, and lists items such as home leave allowances as earned.
The second reading stresses the statute. SMP is a payment required by UK social security legislation, largely reimbursed to employers by HMRC and classed by UK law as a social security benefit. The same IRS guidance excludes pension or annuity payments, including social security benefits, from foreign earned income. On this view SMP is closer to a state benefit than to wages.
Enhanced maternity pay sits more comfortably in the first reading, because the employer pays it from its own funds under the employment contract. Neither reading is confirmed by the IRS for SMP. A position taken on one return should be applied consistently in later years and recorded in the working papers.
Can maternity pay be excluded under the foreign earned income exclusion
Enhanced maternity pay from a UK employer is more readily treated as foreign earned income and excluded on Form 2555, as long as the other tests are met. SMP can be excluded only if it is treated as earned income, which is the unsettled point above. If it is not earned income, it stays in US taxable income and the UK tax on it is relieved by credit instead.
The foreign earned income exclusion (opens the official IRS page in a new tab) reaches only earned income from sources outside the United States. Publication 54 (opens the official IRS page in a new tab) says the source of earned income is the place where the services that produce it are performed. For someone who has worked in the UK throughout, any maternity pay treated as compensation is UK-source. The annual cap of $130,000 for 2025 applies to everything excluded on Form 2555.
The exclusion also needs a tax home abroad. Publication 54 describes a tax home as the principal place of business, employment or post of duty. An employee on leave from a UK job, still under contract and living in the UK, generally keeps that tax home throughout the leave. A parent who resigns during or after the leave, or moves away, needs to look at that point again.
In a year of leave, the exclusion often offers less than it seems. The two reliefs may then run side by side, and the exclusion blocks the refundable child tax credit. Our post on the foreign tax credit or the exclusion explains why the credit usually gives the better result for UK earners.
Maternity pay and the foreign tax credit on Form 1116
UK income tax deducted from maternity pay is creditable on Form 1116, and in most cases it falls in the general category alongside salary. That holds under either reading of SMP, because maternity pay is not among the investment items that make up passive category income.
Publication 514 (opens the official IRS page in a new tab) says general category income covers income that does not fall into another separate category, and in most cases includes wages, salaries and overseas allowances of an employee. The passive category lists dividends, interest, rents, royalties, annuities and certain gains. Maternity pay is none of these, so the UK tax on it joins the tax on salary in the same general category on Form 1116.
The year of leave often has a lower income than a working year. The US tax on that income may be smaller than the UK tax withheld, leaving excess credit, which carries back one year and forward ten within the same category. Leave that spans December and January splits across two US years, and our post on paid or accrued UK tax explains how the crediting method decides which year the UK tax lands in.
Take a US citizen employed in Bristol who starts maternity leave in the spring. Her employer pays enhanced maternity pay for the first months, then SMP alone, then nothing for the final weeks before she returns to work in the new year. She claims the foreign tax credit, so all of it is reported on her Form 1040 in US dollars, the UK tax deducted under PAYE in the calendar year goes into the general category, and Form 2555 is never filed. The only point her return has to settle about SMP is its effect on the child tax credit, covered next.
Does SMP count as earned income for the child tax credit
It depends on the same unsettled question. The refundable additional child tax credit builds up with earned income above a floor, so a parent whose income in the leave year is mostly SMP may find the refundable amount changes depending on whether SMP is treated as wages. Enhanced maternity pay is more readily treated as earned income.
The Schedule 8812 instructions (opens the official IRS page in a new tab) start the earned income figure from wages reported on the return, so maternity pay reported as wages flows through, while an amount reported as other income does not. The same instructions say income excluded under a tax treaty is left out of earned income, and that a Form 2555 filer cannot claim the additional child tax credit at all.
The way the credit works abroad, including the Social Security number rules and the interaction with the exclusion, is covered in our post on the child tax credit for American families in Britain. For a leave year, the point to add is that the reporting choice for SMP should be made deliberately and with the credit in view.
- Enhanced maternity pay reported as wages: counts towards earned income for the refundable credit
- SMP reported as wages: counts on the compensation reading, which the IRS has not confirmed
- SMP reported as a benefit: generally outside earned income, so the refundable amount may fall
- Any year with Form 2555: no additional child tax credit, whatever the characterisation
Does maternity leave break the physical presence test
No, so long as the leave is spent outside the United States. The physical presence test asks for 330 full days in a foreign country within twelve consecutive months, and the IRS says days abroad count for any reason, provided the tax home is in a foreign country. A day at home in London on leave counts as fully as a working day.
The risk is travel. Many new parents spend several weeks with family in the United States during leave, and those days do not count. The IRS page on the test says a shortfall disqualifies the claim whatever the reason, including illness, family matters or a holiday. Days over international waters do not count either, and a full day runs from midnight to midnight.
The test can use any twelve-month period, so a long US visit in the middle of the leave year can sometimes be placed outside the chosen window. Where it cannot, the exclusion may not be available for that year at all, which is another reason a credit filer is better placed. Our individual tax returns work counts the days from travel records before the exclusion is claimed, and our UK Self Assessment service checks whether a UK return is needed for the same year. For the rest of a family's annual filing, return to the guide for Americans in the UK.
- Days in the UK on maternity, paternity or shared parental leave: count
- Days visiting family in the United States: do not count
- Days in other foreign countries on holiday: count, if the tax home stays abroad
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
