The year your US return owes you money, and usually does not pay

Figures relate to tax year 2025-26 (UK) · 2025 (US)

A maternity year is the year your American tax return is most likely to owe you money. It is also the year most expatriate parents quietly hand that money back.

The reason sits in a choice made on autopilot. Exclude your foreign earnings, as most people do every year, and a refundable child credit walks out of the door with them.

Behind that choice lies a second one. Britain pays new mothers through two separate routes, and one kind of maternity pay counts as earnings while the other does not.

Key takeaways

• Statutory payments run through payroll and count as earnings.
• Maternity allowance comes from the state and does not.
• The treaty keeps state social security payments out of US tax.
• Enhanced employer schemes follow the statutory treatment.
• A low income year can unlock a refundable child credit.
• Using the earned income exclusion usually blocks that credit.
• Switching between relief methods carries a five year lock.

What is statutory maternity pay?

A payment your employer makes through payroll for up to 39 weeks, with tax and national insurance taken off in the usual way. For 2025-26 it runs at 90 per cent of average weekly earnings for six weeks, then £187.18 a week or 90 per cent if that is lower.

HMRC refunds most of the cost to the employer. That refund never touches you, so it changes nothing on your side.

What matters is the route. Because the money arrives as wages, your American return treats it as wages too.

What about enhanced company schemes?

Occupational schemes follow the statutory treatment, because the employer still pays it through payroll as remuneration. A bank paying six months at full salary produces six months of ordinary wages. Generosity does not change the character of the money.

The same holds for a lump sum return to work bonus, which is simply earnings in the year you receive it.

Clawback clauses complicate things, and we come back to those below.

Does maternity pay qualify for the earned income exclusion?

Payroll payments generally do, because they count as compensation for services performed abroad. The exclusion caps at $130,000 for 2025, far above anything a maternity year produces. Maternity allowance sits outside it, though the treaty already removes that payment from charge.

So the exclusion usually wipes out the American tax on a maternity year without effort.

That convenience hides a real cost, which is the next section.

What happens to the child tax credit?

Claiming the foreign earned income exclusion shuts you out of the refundable part of the child credit. For 2025 that refundable amount reaches $1,700 per qualifying child. A parent who excludes all their income therefore walks away from a cash payment, often without realising it.

The alternative is the foreign tax credit, which leaves the income on the return and offsets the American tax with British tax paid.

Our guide to the child tax credit from abroad runs the comparison properly.

Why does a maternity year change the maths?

Because a low income year is exactly when the refundable credit is worth most relative to everything else. Full salary years often generate enough British tax to cover the American liability anyway. A part year on leave can still carry plenty of credit while the income itself sits low.

So the year you least expect to plan is often the year planning pays best.

Run the numbers both ways before filing, rather than repeating last year's choice.

Can you switch methods freely?

Not quite, because revoking the earned income exclusion locks you out of it for five tax years without permission to return early. That rule turns a one year decision into a six year one. Plenty of parents switch anyway, though the arithmetic deserves care first.

Where British tax comfortably exceeds the American charge every year, the lock costs nothing in practice.

Our guide to the foreign earned income exclusion sets out the mechanics.

A worked example

Take an illustrative example. An American software developer in Leeds earns £54,000 and goes on leave in April 2025.

She receives six weeks at 90 per cent of her normal pay, then the flat rate for 33 weeks. Her employer tops it up for the first three months under a company scheme.

Every pound of that goes on her American return as earnings. Her total for the year lands near £28,000.

A colleague on maternity allowance instead, having gone self employed, reports none of her £7,300. The treaty keeps it out.

The two payments compared

What is maternity allowance?

A state benefit for people who cannot get statutory maternity pay, typically the self employed or those who changed jobs recently. For 2025-26 it pays up to £187.18 a week for 39 weeks, according to GOV.UK guidance. No employer sits in the middle.

Britain does not tax it. That alone makes it unusual among replacement income payments.

The American answer is more unusual still, and it is the reason this article exists.

Does maternity pay go on a US return?

Payroll payments do, because America taxes its citizens on worldwide income and wages are wages wherever they arise. Maternity allowance is the exception. As a payment made under British social security legislation, the treaty hands taxing rights to Britain alone.

Since Britain then chooses not to tax it, the money escapes both systems. That is rare and entirely legitimate.

You still disclose the position properly rather than simply omitting the figure.

Why does the treaty protect one and not the other?

Because the treaty draws its line by who pays rather than by what the money replaces. Payments under a country's social security legislation stay taxable only in that country. Wages from an employer fall under a different article altogether, and that article leaves America free to tax its citizens.

So the label on the payslip decides the answer. In our practice that strikes clients as arbitrary, and in a sense it is.

Our guide to UK state benefits on a US return covers the wider pattern.

What about shared parental pay?

Shared parental pay runs through payroll and takes the same American treatment. Employers run it through payroll at the same flat weekly rate. Either parent can receive it, so an American father splitting leave reports his share as wages.

Statutory paternity pay behaves identically, though it lasts only a fortnight.

Adoption pay is also payroll based and follows suit.

Does the timing of payments matter?

Yes, and the mismatch between tax years creates most of the confusion. Britain runs to 5 April while America runs to 31 December, so a single maternity leave usually straddles two of each. Your American return reports what arrived in the calendar year, nothing more.

So the P60 figure rarely matches the American one. That is normal rather than a mistake.

Our guide to the P60 on a US return explains the reconciliation.

What if you repay enhanced maternity pay?

Many company schemes claw back the enhancement if you leave within a set period after returning. The repayment lands in a later year than the income, which is awkward on both sides. Britain usually adjusts through payroll while America needs a separate claim.

Keep the scheme rules and the repayment schedule together with your tax papers.

In our practice this is the single messiest issue we see.

Does it change your UK tax code?

Often, because a part year at a lower rate leaves allowances unused and the code lags behind reality. Many parents finish the British tax year owed a refund they never claim. HMRC usually corrects it automatically, though a mid year return to work can delay things.

So check your code when you go back, rather than waiting for a letter.

A refund of British tax also reduces the credit available against your American bill, which is worth noticing before you file.

Does it affect your national insurance record?

Statutory maternity pay normally keeps your record intact, and maternity allowance brings credits of its own. Neither interrupts a qualifying year in most cases. That matters later for the state pension, which has its own treaty treatment on the American side.

Check the record afterwards rather than assuming, especially where you changed employer mid leave.

Gaps found early cost far less to fill.

What about childcare support afterwards?

Tax free childcare and the thirty hours offer are British schemes with no American equivalent. Neither pays you cash, so neither appears as income on your return. The benefit arrives as a reduction in what you hand the nursery.

Child benefit is different, because it does arrive as money in your account.

That one follows the social security logic we covered earlier.

Does your spouse's position change anything?

It can, particularly where one parent is British and files nothing in America. A joint return pulls their income into the American system permanently, which rarely helps. Filing separately keeps the British spouse out while preserving the child credit for the American parent.

The credit needs the child to hold a social security number, so apply early if you have not.

Consular appointments for a child's documents take months in London.

What if you move country during leave?

Then the position splits, and the split rarely follows the calendar neatly. Payments from a British employer stay British source while you work there, but a move to America mid leave changes the analysis from that point. Residence, source and treaty protection all shift together.

Where leave ends with a relocation, get the dates recorded precisely.

In our experience a week either side of a move can swing several thousand pounds of tax.

What records should you keep?

Keep your payslips for the whole leave, the payment schedule from your employer and any award letter from the state. Together they separate the payroll money from the benefit money cleanly, which is the distinction your American return turns on. Keep the scheme rules too.

Those rules govern any clawback years later, long after anybody remembers signing them.

Six years is a sensible retention period on both sides of the Atlantic.

How to handle the return

1. Separate payroll payments from any state payment.
2. Total the payroll amounts by calendar year, not tax year.
3. Convert each month at the rate you use consistently.
4. Check whether the state payment is treaty protected.
5. Model the exclusion and the credit side by side.
6. Confirm every child holds a social security number.
7. File the return that leaves the better overall result.
8. Record the choice, since switching later carries a lock.

Mistakes and penalties we see with maternity pay

The first is treating every payment alike. The payroll ones and the state one part company immediately.

The second is excluding the income out of habit and losing the refundable credit. For a family with two children that can cost $3,400 in a single year.

The third is omitting maternity allowance without explaining why. Leaving a figure off silently invites questions later.

The fourth is missing a clawback repayment, which quietly overstates the income you reported.

How US UK Tax Accountants helps

We split a maternity year into its component payments and tell you which ones America can reach. Then we model the exclusion against the credit and show the cash difference before you commit.

Where a clawback has already happened, we fix the earlier year rather than leaving it. Our US federal returns service covers the filing itself.

If a baby is due and nobody has looked at the tax side, get in touch before the leave starts.

Last reviewed 11 October 2026. This article is general information and not personal tax advice. Family circumstances vary widely, so take advice on your own before filing.