30% Mandatory Withholding for Non-residents
Hi,
This question is regarding 30% mandatory withholding of IRA distributions to a foreign person (returned to India).
1) If a non-resident alien withdraws from his IRA (before 59.5), I understand that the plan custodian should withhold 30%. Can the NRA file 1040NR and get refund if he is liable to pay less than 30% tax (including 10% penalty)?
Example: NRA withdraws 10000 from IRA. He has to pay a 10% penalty of 1000. IRA custodian withholds 3000. When the NRA file 1040NR, s/he determines that the tax + penalty he is liable to pay is 1600. Will IRS refund (3000 - 1600) = 1400?
2) Would the effectively connected income be taxed differently from capital gains/interest in the IRA? How is the ECI and gains segregated on withdrwal? In the above example how will they determine what portions is capital gain?
3) If the NRA (India resident) file W8-BEN, will that reduce the tax on the interest/capital gains through some tax treaty?
Regards
Sri