1042-S resident for tax purposes, income code 15, exemption code (4a) 15, chapter 3

[anna38]

How can I input this in Turbo Tax? I saw some advice that this would be filed as a substitute 1099R but I got stuck having to select an option for the distributions box as a number 1-9 or a letter (mine is actually 15 per my 1042-S). Should I instead file under 'Less common income > Misc Income'? Then where does the 30% tax already paid get entered?

[pk]

@anna38 , you say you are resident for tax purposes ( yes? ) and I assume that you are present in the USA ( with what visa ? ) and  you have SSN ( yes? ).  Then why the 1042-S.  Ideally you need to get the issuer to correct  this and report this pension to you on form 1099-R.   And then when you file  there should be a reconciliation of the 30% withheld in error. Can you answer my questions , please

[anna38]

Thank you for replying!! Resident for tax purposes as we are green card holders and meet the physical presence test to be resident for tax in 2020 but we moved back to UK May 2020. I think this is why we are only getting the 1042-S and not able to receive 1099-R as we are in the UK now.

[pk]

@anna38 , since you say you both have Green Card, you ARE permanent resident of USA and therefore  subject to the tax rules just as if you were a citizen of USA   ( unless of course you have relinquished your residency officially).  Therefore I do not understand why  the US pension administrator issued  you a 1042-S --- they should have issued a 1099-R.   What am I missing here?   

You say you became  residents in 2020  ( your Green Card was issued in 2020 ) or did you mean that you became  a resident for tax purposes  by meeting the substantial presence test ?  When did you come into USA ? From which country ?  when did you get your Green Card ?  Are you both with Green Card?  Are you retired ?   Some of these answers  may help clarify the situation --yes ? 

[anna38]

Thank you! 1) Green card - issued in 2020. Yes, also meeting the substantial presence test for 2020. 2) Moved to the US in 2014 from the UK, am a UK citizen. Moved back to the UK in May 2020. 3) Not retired. Under age 40. 4) Husband has the exact same situation as me. 

They said 1042-S because our address is not in the US.

[pk]

@anna38 , going through all of the above, I suspect that  based on the bank's understanding  of your situation ( and probably not being aware of the Green Card having been issued), there was a "presumption" that you  have become a "Non-US person " and hence the issuance of the 1042-S.   The facts and circumstances  ( based  on above ) suggest  otherwise  but that is of no help in your  situation.  

1. So , absent  a statement by you to the US authorities  that you have abandoned the residency  ( or violating the required  visit to the US rules) , you are treated as a  resident alien.

2. The above means that you file a form 1040 and be taxed by the USA on your world income henceforth

3. This also means that you essentially have to create an alternate/dummy  1099-R for withdrawing your  pension/401(k) etc. , pay the usual tax AND also the 10% penalty for early withdrawal  ( I think this is suspended  for 2020 because of the  pandemic -- I/you  have to look this up ).

4. Even if  you have absolutely decided  to NOT ever be a resident of the USA, you should visit the US Embassy/Consulate  in London  and clarify your options regarding this.

Is there more I can do for you ?

Cheers

[anna38]

Thank you! From all guidance I can find, I agree with your very helpful answer and will fill out the substitute 1099-R with my 1042-S.

A final question - I have to select an option for box 7 on the 1099-R form - do you know what option is best if my 1042-S has income code 15, exemption code (4a) 15 under chapter 3? Thank you!

[pk]

@anna38 , I am assuming that  this was  "total disbursement " of your pension account in the USA  (  employee contribution or 401(k) type of tax advantaged savings for pension  --- so the statements  about exemption code just  tells that   either  this was chapter 3  i.e. disbursed to an individual and there fore  there was no exemption to  withholding  OR  the monies were  sent to an account in a Foreign Financial Institution ( FFI ) -- chapter 4 payment where the receiving institution  is exempt from withholding, probably because the   withholding was  from the individual.  In any case just ignore all these .

When you prepare the  substitute 1099-R / equivalent make sure  that you show your basis in the account i.e. any monies that you contributed  AFTER tax -- there is box for that on 1099-R.

If I am wrong about my assumptions , please correct me  so I can address that 

Stay safe

pk