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taxq121 · Sep 8, 2007, 07:29 PM

Does one have to file tax return for the interest income from CD or money market accounts in US if the person is living in China full time?

What about the income for the work performed in China he is paid for to his banking account in US by US company?

He used to live here and he has social security number.

Thanks.

AtlantaTaxExpert · Sep 10, 2007, 08:17 AM

If the foreign national is NOT physically present in the United States, then interest on CDs is NOT taxable.

However. Money market interest is NOT really interest; they are dividends and ARE considered taxable. However, the foreign national's personal exemption of $3,400 for 2007 will probably completely offset the dividends received, so not taxes would be due.

If you know that your money market dividends will not exceed $3,400, no tax return is required. In order to keep from having to file a tax return to get back taxes withheld by the broker, file a Form W-8BEN with the stock broker so that no money will be withheld.

If all the work is performed in China and the foreign national is NOT under a H-1 or H-1B visa, then he is NOT liable for taxes on the China-based income, even though the money is paid via a U.S. bank account.

taxq121 · Sep 10, 2007, 06:13 PM

Thank you very much. I really appreciate it.

AtlantaTaxExpert · Sep 11, 2007, 01:42 PM

Glad to help!

taxq121 · Sep 11, 2007, 05:05 PM

There're some money already withheld by the bank. And the bank just sent out w-8ben form--exactly the same form you mentioned in your advice. If the w-8ben form is filed, will the withheld tax be automatically refunded or any other form to file for the refund? Thanks very much!

BTW, I'm so amazed at your opinion!

taxq121 · Sep 11, 2007, 05:13 PM

BTW, for the income a US company pays to a Chinese citizen for the work performed in China and to a bank account here in the US, will there any potential problems for the US company to pay to the account here? I suppose for the Chinese citizen, he needs to pay tax in China for the income and has no other obligations, right? Thanks much!

AtlantaTaxExpert · Sep 12, 2007, 10:03 AM

Under the NUG (normally, usually, generally) rule, countries tax their citizens when they are within their borders and let the other countries tax their citizens when they are within the other countries' borders.

The United States, however, taxes its citizens regardless of where they are located on ALL of their world-wide income.

So, under the NUG rule, China probably will tax its citizen on the interest earned in the U.S. bank.

You can ask the bank to refund the withholding once you file the W-8BEN. They may or may not refund it, depending on whether it has already been sent to the U.S. Treasury. If not, then the Chinese citizen will have to file a non-resident tax return to get the withheld taxes back as a refund.

taxq121 · Sep 13, 2007, 04:54 AM

Thanks very much! Again, really helpful.

AtlantaTaxExpert · Sep 13, 2007, 11:02 AM

Glad to help!