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The U.S. requires a 30% withholding on payments made to non-U.S. citizens on certain types of income payments.
The 30% withholding is submitted to the IRS as tax withholding and can be reclaimed by filing a U.S. Federal Tax Return.
You will generally need to obtain an Individual Taxpayer Identification Number (ITIN) using Form W-7 with a U.S. Certified Acceptance Agent to be sent along with your U.S. Federal Tax Return Form 1040-NR.
On the Federal tax return you will list the total income and the amount of taxes already paid. If you owe no tax or less than 30%, you will receive the difference as a refund.
I no longer live in the US. I left in 2011. I am temporarily resident in Indonesia.
Do you previously have an ITIN or U.S. Social Security Number that you can use to file a tax return?
Great! As a non-resident of the U.S. you would file Form 1040-NR. This will allow you to apply for a tax refund.
TIAA CREF tell me any withdrawals would be subject to 30% withholding
But I have no taxable earnings in the US any more.
Is my pension deemed an earning?
You can provide TIAA CREF with a Form W-8 which states that withholding will not be necessary because you will be claiming the income on a federal tax return. A pension is taxable income because it is deferred compensation. Meaning the pension was funded with pre-tax dollars.
However, even as taxable income you are entitled to some deductions and if the amount isn't very large each year you will likely pay little or no tax compared to the 30% withholdings.
Let's say I withdrew $10,000 per year.
the they took off 30% tax withholding.
which amounts to $3,000
would I get all that back by following the procedure above?
Most likely you will not get all of it back. The lowest tax bracket in 2013 will be 15% which will amount to $1,500. Assuming you qualify for some deductions you may only pay $1,000 (more or less). However this would at least save you $1,500 - $2,000 + in U.S. taxes.
When would I need to file the NR form?
The Form 1040-NR is due by April 15th each year if you are a calendar year taxpayer.
Sorry but what is a a U.S. Certified Acceptance Agent?
W7 form is for ITIN if you don't have a US social security number. But I have an SSN.
Since you already have a Social Security Number or Individual Taxpayer Identification Number you will not need to use Form W-7. Only a U.S. Certified Acceptance Agent/Acceptance Agent can obtain an ITIN for you.
TIAA CREF werre telling me I could claim part of the wthholding back if I were in the UK. Does the withholding actually go to thUK or does it stay in the US?
The withholding goes to the IRS, but most likely they are referring to the foreign tax credit which is similar to a U.S. tax return. Basically, if you pay tax in another country on income, you receive credit on your tax return in your country for the tax already paid to help ensure you aren't paying double tax on the same income.
Do you know what your tax rate is in the U.K.?
So it is only the US from which I could reclaim some of the tax back? Not the UK?
I just checked and it appears that the UK has a foreign tax credit as well. So when you file your tax return in the UK you can claim a foreign tax credit for any U.S. tax you paid.
For example, if you claim the $10,000 in the UK as income and pay 30% tax, there would be no need to file a U.S. tax return because you could offset the UK tax of $3,000 with the U.S. tax of $3,000.
If you are in a 30% tax bracket or higher in the UK, it would most likely be more advantageous to take a foreign tax credit for the $3,000 U.S. tax and not file a U.S. tax return.
I think I get the gist
SoI need to decide whether it is best to file it as part of a UK or US tax return.
Correct...it may not be worth your time and the trouble to file a U.S. tax return if you can receive credit for the 30% withholding on your UK tax return.
But I am in Indonesia right now. Are the reciprocal tax agreements realted to the country where a person lives or their nationality?
Each country has their own laws. But many times (other than the U.S.) it is taxed in the country where the income is earned.
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Thanks, Shane. I don't think there is any more to ask you at this moment in time.