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My question is about US tax withholdings and how I can at least

partially reclaim them if resident...
My question is about US tax withholdings and how I can at least partially reclaim them if resident in the UK. I am a UK citizen and am shortly due to take early retirement in the UK, for which I will need to access my TIAA-CREF pension that I paid into during 5 years in the US. TIAA-CREF tell me there will be a 30% tax withholding. Does this money actually go to the UK tax authorities? Would I just lose it or would I be able to reclaim part of it depending on my earnings in the UK?
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Answered in 1 minute by:
12/6/2012
Shane-CPA
Shane-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 265
Experience: Shane Northrop is a Certified Public Accountant, Personal Financial Specialist and a Chartered Global Management Accountant
Verified

Shane-CPA :

Hello...my name is XXXXX XXXXX I am a Certified Public Accountant. I look forward to helping you with your tax question.

Shane-CPA :

The U.S. requires a 30% withholding on payments made to non-U.S. citizens on certain types of income payments.

Shane-CPA :

The 30% withholding is submitted to the IRS as tax withholding and can be reclaimed by filing a U.S. Federal Tax Return.

Shane-CPA :

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.

Shane-CPA :

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.

Customer:

I no longer live in the US. I left in 2011. I am temporarily resident in Indonesia.

Shane-CPA :

Do you previously have an ITIN or U.S. Social Security Number that you can use to file a tax return?

Customer:

yes

Shane-CPA :

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.

Customer:

TIAA CREF tell me any withdrawals would be subject to 30% withholding

Customer:

But I have no taxable earnings in the US any more.

Customer:

Is my pension deemed an earning?

Shane-CPA :

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.

Shane-CPA :

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.

Customer:

Let's say I withdrew $10,000 per year.

Customer:

the they took off 30% tax withholding.

Customer:

which amounts to $3,000

Customer:

would I get all that back by following the procedure above?

Shane-CPA :

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.

Customer:

When would I need to file the NR form?

Shane-CPA :

The Form 1040-NR is due by April 15th each year if you are a calendar year taxpayer.

Customer:

Sorry but what is a a U.S. Certified Acceptance Agent?

Customer:

W7 form is for ITIN if you don't have a US social security number. But I have an SSN.

Shane-CPA :

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.

Customer:

Ok

Customer:

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?

Shane-CPA :

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.

Shane-CPA :

Do you know what your tax rate is in the U.K.?

Customer:

So it is only the US from which I could reclaim some of the tax back? Not the UK?

Shane-CPA :

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.

Shane-CPA :

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.

Shane-CPA :

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.

Customer:

I think I get the gist

Customer:

SoI need to decide whether it is best to file it as part of a UK or US tax return.

Shane-CPA :

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.

Customer:

But I am in Indonesia right now. Are the reciprocal tax agreements realted to the country where a person lives or their nationality?

Shane-CPA :

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.

Customer:

Thanks, Shane.

Shane-CPA :

You're very welcome! Thank you for allowing me to assist you. If you are completely satisfied with the service I provided you today, please provide me with positive feedback so that I may receive credit for my response. If you feel exceptional service was provided, bonuses are greatly appreciated. If I can be of further assistance, please let me know. Have a great day!

Shane-CPA
Shane-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 265
Experience: Shane Northrop is a Certified Public Accountant, Personal Financial Specialist and a Chartered Global Management Accountant
Verified
Shane-CPA and 87 other Tax Specialists are ready to help you
Ask your own question now
Hi Tony...This is Shane CPA from Just Answer. I assisted you with your question a few days ago. I wanted to follow up with you to see if my response has met your needs and if there are additional questions I can help you with.

Please let me know if I can be of service to you at any time!

I look forward to hearing from you!

Best Regards,
Shane, CPA
Ask Your Own Tax Question
Customer reply replied 4 years ago


Thanks, Shane. I don't think there is any more to ask you at this moment in time.

Thank you Tony! Please let me know if I can assist you in the future!

Best Regards,

Shane - CPA
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Shane-CPA
Shane-CPA
Shane-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 265
265 Satisfied Customers
Experience: Shane Northrop is a Certified Public Accountant, Personal Financial Specialist and a Chartered Global Management Accountant

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