Originally Posted by
mack20007
Actually a treaty whether it exists or not is not really relevant to his issue.
Per pub 519 Tax Guide for Aliens, p 15, a nonresidents interest from a savings account is exempt if its not connected to any trade or business, period. And nowhere in this Interest exclusion matter does it references treaties.
Pub 901 Tax Treaties, which primarily deals with treaties therefore is not relevant This income is exempt by IRS Code, not a treaty.
This gentlemen only needs to submit a properly completed F w-8ben, and if he meets the criteria, the bank is not allowed to tax it.
If he wants to pursue the recovery of the withholding he can work with the bank, by correspondence or otherwise to correct it. He is not required to, if he wants, he can to let the matter drop. 30% is the maximum they can take out, and the IRS will consider, the matter closed, no further forms need be filed, no further action necessary.
He has to remember though if the bank is still paying him any interest its still going to keep withholding 30%, until that issue is resolved.
Now, if he decides get his withholding back, he has two options.
1. What we've already gone over, try to get the bank a correct W-8ben and ask for the withholding back. IF they do, that ends it, stories over.
2. If they dont give he must file a 1040NR to recover it.
a. To do so he must complete page 4,line 76a, column (a) Amount withheld at source, he puts the amount the bank withheld; in column (e) he puts 0%, which represents his correct rate as its completely exempt and not subject to tax..
b. Also, completes p.5 item L, which states...
"Have you excluded any gross income other
than foreign source income not effectively
connected with a U.S. trade or business?
If “Yes,” show the amount, nature, and source of the excluded income. Also, give the reason it was excluded.
He'll describe this as bank account interest he wants to exclude, and complete.
other areas of the form e.g. name, address, withholding on line 58, etc.
The IRS will allow the refund of the withholding, even though the bank does not.
The bank should issue him a F 1042S, not a 1099int, as previously indicated, showing the amount withheld which he must attach to the 1040NR to claim the withholding.
And thats right S-cianci, rules are differnt for aliens. The interest income from a normal savings account you and I, as citizens would earn is taxable, but not so for aliens, they are exempt by code from this income. This income is similar to certain gambling income aliens receive, an exemption by code exists, even if no treaty is invovled.
Its when they dont complete the form properly withholding occurs in error, and sometimes the bank makes mistakes as well.
I want to emphasize the 1040NR must be fully completed, I've only gone over main areas of the form that relate to his issue.