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    Ethel5's Avatar
    Ethel5 Posts: 3, Reputation: 1
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    #1

    Jun 9, 2014, 11:57 AM
    Early distribution from defined benefit plan by non-resident
    Hello there, I am not in retirement age, yet but last year I requested and received a lump-sum distribution from a defined benefit plan which I still had from my employment in the US years back. The distribution (30% withholding) did only include my contribution and not the employer contribution or interest. Last year and this year I was/am a non-resident with no trade or business activities in the US. Here my questions: a) Is this effectively connected income and can I apply the graduated scale for taxation and not the 30%? Pub 519 is not clear here and speaks of pensions and not lump-sum distributions. b) If it is effectively connected income and I don't owe any taxes but would receive a refund can I file at a later date than the filing deadline to claim the refund or would I face any late filing or other non-filing penalties? Any reference to existing law appreciated Thanks in advance for your help
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
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    #2

    Jun 9, 2014, 02:55 PM
    a) It IS, in my opinion, effectively-connected income because it was part of your compensation earned while you worked in the United States.

    b) You have three years from the initial filing deadline to file your return and claim your refund. Hence, for the 2013 tax year, you have until 15 April 2017 to file. AFTER that date, you forfeit any refund.
    Ethel5's Avatar
    Ethel5 Posts: 3, Reputation: 1
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    #3

    Jun 10, 2014, 12:06 PM
    Well, thank you for your answer!
    Is there any reference you or others could provide?

    So receiving effectively connected income does not make me indirectly having performed personal services for last year?
    Also 1040NR instruction say that one has to file if one owes any additional tax on a qualified plan (the 10% I guess). Does this only apply if this is not covered by the taxes that were withheld.
    I just want to make sure I am not falling into any non-compliance trap if I file later.

    Thanks
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
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    #4

    Jun 10, 2014, 05:04 PM
    Taking a pension distribution as posted by you, your income is considered "deferred compensation", which means it is taxed progressively (instead of the flat 10%), which allows you to claim a personal exemption.

    There is no non-compliance trap if you are due a refund. If you OWE added tax, you need to file by 15 June 2014 to avoid any late filing/late payment penalties.

    The return is considered filed if it is MAILED and POST-MARKED by 15 April 2014.

    If you need professional help filing, this IS what I do! Please email me at the email address in my profile if interested.
    Ethel5's Avatar
    Ethel5 Posts: 3, Reputation: 1
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    #5

    Jun 11, 2014, 09:00 AM
    Glad to hear that I can file even after June 15 without any trouble.
    (I guess you meant 'flat 30%' in your post? )
    Hope I can manage from here but will take your offer into consideration if I get stuck.
    Final question: Is it correct that I don't have to prepare a state return for this? Again I did not live in the US... Thanks again!
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
    		  
    #6

    Jun 11, 2014, 10:12 PM
    Correct. If you did not physically live in the state, the state has NO LEGAL STANDING to tax the distribution.
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