Question regarding 1042-S

[mxxjoko]

I am worried that I made a mistake for the past 2 years in filing my taxes.

I am a NRA and I work in foreign government, so I don't pay taxes to the US government. 

I made some interest through money market savings, and I filed a W-8BEN to the bank to let them know my NRA status. 

My 1042-S for 2024 shows income code 29, 3 "3", 3a "N/A", 3b "30", 4a "15", 4b "0", 7a "0", 8 "0"

For tax year 2023, Ally Bank initially sent me a 1099-INT, but I filed a W-8BEN and was told by the bank that I am exempt from taxation, but never received a 1042-S. 

I haven't filed any taxes for the past 2 years. 

FYI I am a Korean national. 

[pk]

@mxxjoko , let me make sure I understand the situation correctly :

(a) You are a Korean ( South ) citizen in the USA on a diplomatic visa ?

(b) You work at/ for the Korean embassy/consulate

(c) You have been here in the USA for at least since 2023

(d) You have some  US sourced  passive earnings ( interest )

(e) You have a 1042-S from a US financial institution with whom you have filed a W-8-BEN

Question is whether you needed to file a US 1040-NR recognizing the US sourced passive income ( specifically  interest from a US bank ).

While I await your response  , I will refresh my memory on the US-South Korea  Tax Treaty.

[mxxjoko]

Yes to (a)~(e). 

I moved to the states summer of 2023.

I can't recall filing a US 1040-NR, but I basically did all that my bank told me to do. 

[mxxjoko]

Just confirmed with the bank that I did not submit a 1040-NR, but I am classified as an NRA on their system.

[pk]

@mxxjoko , I looked at US-South Korea tax treaty, form 1042-S instructions,  and  a May 13th 1964 opinion of the IRS OGC concerning  US sourced  interest/dividend  etc. type of Chapter income, website of the  OFC ( that deals special tax benefits -- Card -- for diplomatic staff of foreign countries ). My conclusion is that even though you are diplomatic staff, living in the US as NRA, you are not immune  from paying US taxes  for income under section 861.  While NRA not living in the US are exempt from having to pay taxes on US sourced interest income ( because generally  interest earning is deemed to be sourced  at the taxhome of the recipient), there is no such exclusion for diplomatic NRAs.   Generally , NRAs living in the US are subject to flat 30% tax on interest income from US sources.

However, and even though your form 1042-S  Box 3b quotes a 30% tax, article  13 of the US-S. Korea tax treaty clearly states that the tax by the US cannot be more than 12% :

Article 13 -- 

      (2) The rate of tax imposed by one of the Contracting States on interest derived from sources within
that Contracting State by a resident of the other Contracting State shall not exceed 12 percent of the
gross amount thereof.

The above conclusion does mean that you have to file a 1040-NR return for both 2023 and 2024 tax years.  Note that TurboTax does not support this form.  Perhaps, your consulate/embassy can help you here -- they must have some tax professionals they work with.

Is there more I can do for you ?