non-resident interests eqnuiry

[Helen123]

Hi 

[Anonymous_]

@pk?

[pk · Accepted solution]

1. As a Non-Resident Alien  and not living in the USA, you are still taxed on your  US Passive income -- at a flat 30% rate.

2. You file your return on Form 1040-NR ( not supported by TurboTax ---you can use a tax professional  back in your home country , UK or here in the USA or use service like  SprinTax, an affiliate of TurboTax )

3. You should keep your  US bank account valid , especially if you are expecting a refund from the IRS .

4. Note that since US tax calendar is based on Calendar year, if you leave the country permanently during the middle of the year , you  may be treated as a dual status alien --- 01/01/XX till the departure date as a Resident & taxed on world  and thereafter till 12/31/XX as a Non-Resident alien, taxed on ONLY US sourced income.

@Helen123 ,  thought you were going to stay here for some time ( based on your earlier questions ).

Does this answer your query ?   Is there more I can do for you ?

pk

[Helen123]

thanks

Helen

[Helen123]

@pk @Anonymous_ can you guys help? sorry for that. I believe lots of people have the same issue.

Helen

[pk]

@Helen123 ,

I will try answer each of your questions  below   ( my response is in italics :(

Based on the IRS, I think non-resident alien's bank interests including CDs are not taxable.  -->   Not true.  NRA ( Non Resident Aliens, when not living in the USA)  are taxed at a flat 30% on  passive income  ( interest, dividend etc. )

1. If I leave the country very early, for example in Jan, which can be treated as non-resident alien automatically,  I think I can ignore the tax split, right?  -->   if you leave the country ( i.e. terminate your residency ) in Jan of 2024 ( say ),  then you will still file your 2023 as a Resident for Tax purposes, use form 1040, be able to use Standard Deduction and  all the benefits of a US citizen/ Green Card holder.  Your passive incomes for 2023 will still be as normal.  

In such a case your 2024 taxes will be treated  based on your residency status using the SPT  ( Substantial Presence Test )  which, depending on how many days you are present in the USA could mean dual status --- resident till the day you leave the country and NRA  post that date ( thus protecting your Non-US sourced in come after departure  from US tax.  But this has to be balanced  against  the loss of the eligibility  to use Standard Deduction and quite a few credits ( if applicable ).

2. Assume I leave the country in Jun 30th, for example, from Jan 1th and Jun 30th, I will be US resident alien, from Jun 31th to Dec 31th, I will be non-US resident alien. If that is case, do I need to report my overesea account in Fbar and 9838 with the max value of the whole year or till Jun 30th? I think for oversea interests income, I only need to report it until Jun 30th, right? -->   

See the above discussion -- #2.   FBAR and FATCA , while generally targeted towards  US persons ( Citizens/GreenCard / Residents for Tax purposes ),  the wording used is " on the last day of the year  .... or at anytime during the year...".   So you should come under the respective clauses.  However, if you filed the form(s)  for 2023 ( say ) and leave in 2024 and not file, the remedies  , if any , to the IRS/Treasury are limited, especially  if you never come back. This being ONLY informational ( no tax impact ), I would still suggest filing  if required and keep the slate clean.

3. I assume file the return is to get the full refund of my interests tax? If the bank doesnt withhold the tax, I think I can directly ignore it? ----->   If you are referring here to 2024 ( when you are back in your home country )  and having reportable passive US sourced income, then generally filing is for reconciliation  purposes.  This is because  Banks  mostly do not withhold taxes on CD / dividend incomes --- as an NRA, you will have to tell the bank that your status is NRA and authorize  them to withhold  & transfer taxes to the IRS.  For incomes like pensions etc. , the administrator of the account will automatically withhold federal  taxes at 20% and can also be authorized  to withhold State taxes ( not applicable to Non-Resident NRA ).

4. If I have a US bank, I will have some interests and then I need to report the US tax next year. I think it will become forever?    --->   Generally true that NRAs have to pay taxes on ALL US sourced / connected  income and reconcile using form 1040-NR each year.

Hope this answers all your questions  ( so far ) .  You are welcome to add  to this thread  if you have more questions and one of us will be happy to help.

pk

[Helen123]

Hi Pk

Many thanks for your clarification.

H

[Helen123]

thanks

[CatinaT1]

Were you able to solve your issue? 

[pk]

@Helen123  assuming that you still answers to your questions  ( a bit late but ..... :(

1. If you left the USA and turned in  your visa  or otherwise  declared that you are no longer living in the USA, you will forthwith be a Non-Resident Alien.  It is best to do this at the end of a tax year ( so you can still us e the  standard deduction unless of course  your itemized deduction is >= to standard deduction ).  As an NRA you are immune to FBAR  ( form 114 at www. FinCen.gov ) or FATCA ( form 8938 ).

2. You are correct   that even if you have become  NRA  ( was RA earlier in the year or year before )  it does not hurt to comply with FBAR / FATCA requirements. It can be extremely painful ( financially ) if you purposely ignore to comply with the regs when clearly you are subject to it ( RA/ citizen/GreenCard).

3. Helen, the sourcing of income(s) is delineated  in sections 861 through 865  and these statutes do not create a carve out for  interest income for NRAs.  However, I do know that almost all the tax treaties ( including the model treaty ) and the interest earnings  sourcing between the states  is always based on where you are resident of ( just like the wages earned are sourced to where the work is performed.  I do not know where this interest sourcing tradition/ ruling came from , perhaps because  it is difficult  pin the source  ( by day in one location  or other such ) of interest earning when one moves.  Thus it is simpler to allocate all interest earnings to where the person resides at the end of the year -- the treaties all generally adhere to it.

4.  If you left the country on date xx/xx and  came back on a visitor's visa  on  yy/yy and stayed for say 5 months , generally you would still be NRA and  generally would not count days present towards SPT ( it is generally not applicable  except in tax case i.e. you must earn and owe taxes and tax regime is based on whether you are RA or NRA .  Does that make sense ?

5. If you leave the country , say in the middle of the year  and when you are filing your taxes  ( US ) you find you owe some amount, you can  pay your dues  to the IRS only in US dollars..   IRS expects  ( as part of the sailing permit ) that you have paid in sufficiently to be "fully paid in "  through withholding and/or estimated payments.  The states expect the same.  Else , it is easier to maintain a bank account with sufficient balance to take care of dues and / or  refund deposits.   IRS suggests that you maintain a  US  bank account for a period to achieve these goals..   However, if my memory serves me right ( knowledge  from the late eighties ) , US embassy in London had  an IRS branch  to deal with such situations---- there being a large expat population in the UK.

6. If you are visiting USA as an NRA, how you spend your money is not a tax event for the USA -- there is no IRS reg. --- the chamber of commerce would love  you the more for spending monies here in the USA.  No reporting requirements  either for IRS  or for the State..  If you are on business visit  and you spend monies , that is between you and your employer --- US does not care .

Have I answered all your questions ?   Is there more I can do for you ?

pk

[DaveF1006]

The substantial presence test is based on a three-year look-back period which consists of;

1. 31 days during the XXXX year, and
2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:

• All the days you were present in the current year, and  
• 1/3 of the days you were present in the first year before the current year, and
• 1/6 of the days you were present in the second year before the current year

So this is based on when you entered the United States. Since you are talking about year 2024, then you would satisfy the 183 day requirement.  I just wanted to make this distinction clear. 

An approved ESTA visa is one that allows a visitor to visit the US for 90 days only for pleasure and there must be a reasonable time between visits hat the CBP Officer does not think you are trying to live here. If so, the Visa will be revoked. You can exclude 90 days if you have an ESTA visa if you stay in the US longer if this answers your question. With the B visa, you may stay up to six months as you are here for business. If you are in the US for six months or less, you would be considered a non-resident. B visas and ESTA visas are two different visas. 

Generally, an H-1B alien who spends 122 days in the United States in each year of the 3-year period will meet the Substantial Presence Test for the current calendar year and be considered a U.S. resident. For details on the 3-year look-back formula refer to Substantial Presence Test.

An H-1B alien who otherwise meets the Substantial Presence Test can nevertheless be treated as a nonresident for U.S. income tax purposes by satisfying the “closer connection” exception to the Substantial Presence Test. See Conditions for a Closer Connection to a Foreign Country. 

if you live in UK and not considered a US resident, all interest that will be reported in your UK tax return.  You have no reporting requirement to the US.

@Helen123 

[Helen123]

M

[DaveF1006]

It depends on a few different factors:

1. In the first example, are you assuming that if someone arrives in the US with an H1B visa, gives it up after 30 days, then has a B-Visa for six month's, and stays the rest of the year? if this is the case, he would be a NRA. 
2. If he was here the previous year on a H1B, and spends the entire 2024 tax year in the US, then he may be a resident depending on if he qualifies to to be a RA under SPT rules. Makes sense?
3. If you are not considered a US resident or citizen in a given tax year, you have no US reporting requirement even though you have US bank interest. You would report this on your UK tax return. This includes all banking interests you may have with the US. I don't know if the UK has the same SPT rules as the US so I am not sure if the 183 day requirement is valid in the UK. You would need to check the tax code there to see if this applies.
4. You must file your 2023 tax return by April 15. This is the due date and there are no exceptions. You do not need to inform the IRS that you intend to be NRA for 2024.

@Helen123 

[Helen123]

tx