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    hi2chaitanya's Avatar
    hi2chaitanya Posts: 1, Reputation: 1
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    #1

    Jun 17, 2019, 06:37 AM
    Personal exemption suspended for those filing 1040NR in tax year 2018
    Hello !

    Iam resident of India, below 59 years age. I have a Traditional IRA account in US from my work in US. I did early withdraw from IRA during 2018 of $ 4000. I have no other income in US, other than IRA withdrawal.

    Until 2017, there was a "personal exemption" of $4050. So, my only tax is the 10% early withdrawal penalty. So, my tax was $ 400.

    In 2018, since personal exemption is removed, it appears that i have to pay additional tax of around $400. Total tax for $4000 withdrawal would be around $800.

    1. Is my understanding correct about the additional tax implication because of suspension of "personal exemption" for NRA's ? Is there any solution to this ?

    2. My IRA custodian has not withheld any tax, and issued form 1042-s. It appears from 1042-s that withholding is not done because of US-India tax treaty. Is the tax treaty only for WITHHOLDING of taxes, or does the tax treaty EXEMPT US-tax itself ? Iam probably being little too optimistic here. But just want to double check.


    Thanks

    (PS: I've gone through previous posts and found them helpful. Thanks AtlantaTaxExpert for your service ! ).
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,778, Reputation: 846
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    #2

    Jun 17, 2019, 06:44 AM
    Your understanding is correct.

    Unfortunately, the IRS custodian was NOT correct in failing to withhold taxes, because the IRA is NOT considered to be a pension as defined by the tax treaty, so you will owe $800 in taxes.

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