101 thoughts on “Coalition Supports RBT – Letter to Ways & Means & Senate Finance Committee”
Any US sourced income for NRAs will require the financial institution or withholding agent to request you supply them with a W8BEN, they will then issue the IRS and the NRA with a 1042S. In theory the IRS is meant to then send your resident tax authority the 1042S.
Does anyone know if as a withholding agent SS NRA payments are reported to resident country on a 1042S?
Heidi – The SSA sorts it out when you apply for SS.
The thing that those considering renunciation need to know, is that the CLN is the key to full NRA privileges, including treaty rates on US-source income, and access to banking services.
To get those benefits, you don’t just have to not “be” a US citizen, you have to be unable to claim US citizenship by reason of birthplace; and that means getting the loss of status written into US records.
@Plaxy
I know they sort it out, it took them 2 yrs of incompetent sorting to give me my tax treaty benefits!!
I just wondered if they actually report my SS income each year to my resident country or if they leave it up to me to be honest!
“Does anyone know if as a withholding agent SS NRA payments are reported to resident country on a 1042S?”
Why? What difference does it make?
The NRA recipient will presumably be reporting the income to his/her tax authority, if required by law to do so. Yes?
Yes, I am but is this another lack of reciprocity issue.
Heidi –
“I just wondered if they actually report my SS income each year to my resident country or if they leave it up to me to be honest!”
Ring them up and enquire.
“is this another lack of reciprocity issue.”
In what way?
@Plaxy
In the same vein as Fred, as a NRA one could claim treaty rates (say 0%) as in the UK and have SS payments placed in a US bank. If SS don’t send a 1042S then resident tax authority is none the wiser.
It took me 2 yrs and many trips to Swiss tax office to claim my treaty benefit (they were only paying me 50%)from both SS and Swiss tax authority, so I am in the system but it struck me that others could and may do just that.
‘In what way’
In the way that the IRS is not reporting foreign sourced income to resident country.
“To get those benefits, you don’t just have to not “be” a US citizen, you have to be unable to claim US citizenship by reason of birthplace; and that means getting the loss of status written into US records.”
This is why not filing, and/or self-documenting one’s loss of citizenship, or lying about USCship, doesn’t protect one from being treated as a risk. It might get you a bank account, in some countries and some banks, but it doesn’t get you marked down as “Lost citizenship” in the US records, and therefore it doesn’t remove the “risky customer” brand. To attain full, documented NRA status, the CLN is needed.
Heidi:
“as a NRA one could claim treaty rates (say 0%) as in the UK and have SS payments placed in a US bank.”
And if the money was never transferred to the UK, that would be perfectly legal.
Heidi:
“I know they sort it out, it took them 2 yrs of incompetent sorting to give me my tax treaty benefits!!”
It took two years for the SSA to withhold tax at the correct rate?
That really surprises me. The SSA generally seem to me to know what they’re doing. Certainly my SS pension was paid correctly from the get-go.
Heidi – How much was being withheld, and what did you manage to get it reduced to?
Presumably they refunded the two years’ worth of excess withholding?
@Plaxy
“And if the money was never transferred to the UK, that would be perfectly legal”
Perfectly legal where? I thought in the UK one had to pay tax on one’s world wide income.
It used to be in the UK that if one had money invested in Jersey/Guernsey offshore building societies one didn’t have to declare the interest earned until one brought it back to the UK. Many would use credit cards to spend the money. Then overnight it was declared illegal and all interest had to be declared by UK residents.
No SS were totally incompetent. They kept sending me computerized letters saying I owed them 50% of my SS payments. For 2 years they paid me 100% no withholding for the entire year and then kept demanding 6 months back as though I lived in a non treaty country.
I kept writing to them that I could claim a tax treaty with a 15% withhold but the demands kept coming. I eventually got it sorted out overnight by a German employee at the US Embassy in Frankfurt.
“I thought in the UK one had to pay tax on one’s world wide income.”
The UK residence laws are complicated. Domicile, arising basis, remittance basis, etc. It would be odd (or at least it seems to me it would be odd) to have one’s US-source pension paid into a US account if one was paying UK tax on the arising basis. Why would you do that? (generic you)
Interesting about the SSA. Perhaps it was a confusion about which country the pension was being received in?
@ Plaxy
I know all about UK residence laws, I was born, lived, studied and worked there. Non doms are in a class on their own but it is clear now that if one is ‘ordinarily resident’ in the UK one is meant to pay tax on their worldwide income. It’s the same in Switzerland, I pay tax on my worldwide income wherever it is deposited.
” Why would you do that? (generic you)”
If one has family in the US, it is useful to have income and an account there,( visits, car hire, grandchildren, gifts, college fees etc) it certainly saves on exchange rate charges and fluctuations.
“Interesting about the SSA. Perhaps it was a confusion about which country the pension was being received in?”
I have no idea why SSA were so incompetent. They knew I was a NRA and I lived in Switzerland. They could see as well as I could from their website that Switzerland had a treaty 15% withhold.
The man in the Embassy in Frankfort seemed to think that someone had misunderstood that Switzerland had a SS tax treaty and once it was in the computer it kept spitting out the same demands and nobody had corrected it. It seems they don’t have the staff to open let alone understand letters, they just rely on forms and computer generated demands or refunds. Unlike me, he was able to speak to someone in person and get a correction overnight.
“If one has family in the US, it is useful to have income and an account there,( visits, car hire, grandchildren, gifts, college fees etc) it certainly saves on exchange rate charges and fluctuations.”
This seems to be going in circles.
As I understand it, if paying on the remittance basis one could indeed receive the SS income in a US account, never remit it to the UK, and use the money when in the US.
If living only in the UK and paying on the arising basis, then as I understand it, the money would be UK-taxable. There would be no point (or none that I can see) in having it deposited to a US account.
I think it’s a classic example of how the US system easily draws people into thinking about where tax can be not paid, rather than where they have a moral as well as a legal duty to pay tax.
Long spoon required.
@Plaxy
As far as I understand there is no difference between remittance and arising basis if ordinarily resident in the UK. Can you point me to evidence that this is not so?
I remember back in the 80’s many UK residents had investments in offshore building societies and the income was not taxable while it was kept offshore. It was changed back sometime in the 80’s and became taxable in the UK and people were very angry about it.
.
@Plaxy
We are not talking about UK Non Doms
From HMRC website
Do UK residents pay tax on worldwide income?
Whether you need to pay depends on if you’re classed as ‘resident’ in the UK for tax. If you’re not UK resident, you won’t have to pay UK tax on your foreign income. If you’re UK resident, you’ll normally pay tax on your foreign income. But you may not have to if your permanent home (‘domicile’) is abroad.
“As I understand it, if paying on the remittance basis one could indeed receive the SS income in a US account, never remit it to the UK, and use the money when in the US.”
Right, I didn’t think of that possibility when I thought it looked like tax evasion. If remittance basis is allowed then this is tax avoidance which used to be legal, where the IRS and CRA even used to advertise that avoidance is legal but evasion is illegal.
If the law changes to impose RBT, great. It won’t be the kind of diaspora taxation that the US imposes on people who will pay proper tax in their countries when they receive the money and never intend to remit money to the US.
Norman Diamond: I don’t know, in fact I’m not sure if I understand your question, if it is a question. As I understand it, some people live part of the year in one country and part of the year in another, and may have income in both countries, and as I understand it can opt to pay tax on Country A income to Country A and use the income while resident in Country A, and pay tax on Country B income to Country B and use the income while resident in Country B. It is a situation that arises quite a lot in the EU, I believe. I believe it is, as you suggest, open to abuse, just as US CBT is open to abuse. I expect not everybody who pays tax on the remittance basis is doing it primarily to get out of paying tax which they ought rightly to be paying, in much the same way that not every dual X/US citizen who pays US tax on their US income and Country X tax on their Country X income is doing it primarily in order to get out of paying tax which they ought rightly to be paying. And not every person who lives or has lived in more than one country and receives income from more than one country has deliberately arranged for that to be the case solely or mainly in order to be able to pay less tax than they would pay if they were receiving income from only one country.
Maybe the delay in the Supreme Court vote is pushing legislation off the table.
The Tax Reform 2.0 bills are scheduled for House votes today and tomorrow, apparently:
Any US sourced income for NRAs will require the financial institution or withholding agent to request you supply them with a W8BEN, they will then issue the IRS and the NRA with a 1042S. In theory the IRS is meant to then send your resident tax authority the 1042S.
Does anyone know if as a withholding agent SS NRA payments are reported to resident country on a 1042S?
Heidi – The SSA sorts it out when you apply for SS.
The thing that those considering renunciation need to know, is that the CLN is the key to full NRA privileges, including treaty rates on US-source income, and access to banking services.
To get those benefits, you don’t just have to not “be” a US citizen, you have to be unable to claim US citizenship by reason of birthplace; and that means getting the loss of status written into US records.
@Plaxy
I know they sort it out, it took them 2 yrs of incompetent sorting to give me my tax treaty benefits!!
I just wondered if they actually report my SS income each year to my resident country or if they leave it up to me to be honest!
“Does anyone know if as a withholding agent SS NRA payments are reported to resident country on a 1042S?”
Why? What difference does it make?
The NRA recipient will presumably be reporting the income to his/her tax authority, if required by law to do so. Yes?
Yes, I am but is this another lack of reciprocity issue.
Heidi –
“I just wondered if they actually report my SS income each year to my resident country or if they leave it up to me to be honest!”
Ring them up and enquire.
“is this another lack of reciprocity issue.”
In what way?
@Plaxy
In the same vein as Fred, as a NRA one could claim treaty rates (say 0%) as in the UK and have SS payments placed in a US bank. If SS don’t send a 1042S then resident tax authority is none the wiser.
It took me 2 yrs and many trips to Swiss tax office to claim my treaty benefit (they were only paying me 50%)from both SS and Swiss tax authority, so I am in the system but it struck me that others could and may do just that.
‘In what way’
In the way that the IRS is not reporting foreign sourced income to resident country.
“To get those benefits, you don’t just have to not “be” a US citizen, you have to be unable to claim US citizenship by reason of birthplace; and that means getting the loss of status written into US records.”
This is why not filing, and/or self-documenting one’s loss of citizenship, or lying about USCship, doesn’t protect one from being treated as a risk. It might get you a bank account, in some countries and some banks, but it doesn’t get you marked down as “Lost citizenship” in the US records, and therefore it doesn’t remove the “risky customer” brand. To attain full, documented NRA status, the CLN is needed.
Heidi:
“as a NRA one could claim treaty rates (say 0%) as in the UK and have SS payments placed in a US bank.”
And if the money was never transferred to the UK, that would be perfectly legal.
Heidi:
“I know they sort it out, it took them 2 yrs of incompetent sorting to give me my tax treaty benefits!!”
It took two years for the SSA to withhold tax at the correct rate?
That really surprises me. The SSA generally seem to me to know what they’re doing. Certainly my SS pension was paid correctly from the get-go.
Heidi – How much was being withheld, and what did you manage to get it reduced to?
Presumably they refunded the two years’ worth of excess withholding?
@Plaxy
“And if the money was never transferred to the UK, that would be perfectly legal”
Perfectly legal where? I thought in the UK one had to pay tax on one’s world wide income.
It used to be in the UK that if one had money invested in Jersey/Guernsey offshore building societies one didn’t have to declare the interest earned until one brought it back to the UK. Many would use credit cards to spend the money. Then overnight it was declared illegal and all interest had to be declared by UK residents.
No SS were totally incompetent. They kept sending me computerized letters saying I owed them 50% of my SS payments. For 2 years they paid me 100% no withholding for the entire year and then kept demanding 6 months back as though I lived in a non treaty country.
I kept writing to them that I could claim a tax treaty with a 15% withhold but the demands kept coming. I eventually got it sorted out overnight by a German employee at the US Embassy in Frankfurt.
“I thought in the UK one had to pay tax on one’s world wide income.”
The UK residence laws are complicated. Domicile, arising basis, remittance basis, etc. It would be odd (or at least it seems to me it would be odd) to have one’s US-source pension paid into a US account if one was paying UK tax on the arising basis. Why would you do that? (generic you)
Interesting about the SSA. Perhaps it was a confusion about which country the pension was being received in?
@ Plaxy
I know all about UK residence laws, I was born, lived, studied and worked there. Non doms are in a class on their own but it is clear now that if one is ‘ordinarily resident’ in the UK one is meant to pay tax on their worldwide income. It’s the same in Switzerland, I pay tax on my worldwide income wherever it is deposited.
” Why would you do that? (generic you)”
If one has family in the US, it is useful to have income and an account there,( visits, car hire, grandchildren, gifts, college fees etc) it certainly saves on exchange rate charges and fluctuations.
“Interesting about the SSA. Perhaps it was a confusion about which country the pension was being received in?”
I have no idea why SSA were so incompetent. They knew I was a NRA and I lived in Switzerland. They could see as well as I could from their website that Switzerland had a treaty 15% withhold.
The man in the Embassy in Frankfort seemed to think that someone had misunderstood that Switzerland had a SS tax treaty and once it was in the computer it kept spitting out the same demands and nobody had corrected it. It seems they don’t have the staff to open let alone understand letters, they just rely on forms and computer generated demands or refunds. Unlike me, he was able to speak to someone in person and get a correction overnight.
“If one has family in the US, it is useful to have income and an account there,( visits, car hire, grandchildren, gifts, college fees etc) it certainly saves on exchange rate charges and fluctuations.”
This seems to be going in circles.
As I understand it, if paying on the remittance basis one could indeed receive the SS income in a US account, never remit it to the UK, and use the money when in the US.
If living only in the UK and paying on the arising basis, then as I understand it, the money would be UK-taxable. There would be no point (or none that I can see) in having it deposited to a US account.
I think it’s a classic example of how the US system easily draws people into thinking about where tax can be not paid, rather than where they have a moral as well as a legal duty to pay tax.
Long spoon required.
@Plaxy
As far as I understand there is no difference between remittance and arising basis if ordinarily resident in the UK. Can you point me to evidence that this is not so?
I remember back in the 80’s many UK residents had investments in offshore building societies and the income was not taxable while it was kept offshore. It was changed back sometime in the 80’s and became taxable in the UK and people were very angry about it.
.
@Plaxy
We are not talking about UK Non Doms
From HMRC website
Do UK residents pay tax on worldwide income?
Whether you need to pay depends on if you’re classed as ‘resident’ in the UK for tax. If you’re not UK resident, you won’t have to pay UK tax on your foreign income. If you’re UK resident, you’ll normally pay tax on your foreign income. But you may not have to if your permanent home (‘domicile’) is abroad.
http://isaacbrocksociety.ca/2018/09/19/coalition-supports-rbt-letter-to-ways-means-senate-finance-committee/comment-page-4/#comment-8399051
“As I understand it, if paying on the remittance basis one could indeed receive the SS income in a US account, never remit it to the UK, and use the money when in the US.”
Right, I didn’t think of that possibility when I thought it looked like tax evasion. If remittance basis is allowed then this is tax avoidance which used to be legal, where the IRS and CRA even used to advertise that avoidance is legal but evasion is illegal.
If the law changes to impose RBT, great. It won’t be the kind of diaspora taxation that the US imposes on people who will pay proper tax in their countries when they receive the money and never intend to remit money to the US.
Norman Diamond: I don’t know, in fact I’m not sure if I understand your question, if it is a question. As I understand it, some people live part of the year in one country and part of the year in another, and may have income in both countries, and as I understand it can opt to pay tax on Country A income to Country A and use the income while resident in Country A, and pay tax on Country B income to Country B and use the income while resident in Country B. It is a situation that arises quite a lot in the EU, I believe. I believe it is, as you suggest, open to abuse, just as US CBT is open to abuse. I expect not everybody who pays tax on the remittance basis is doing it primarily to get out of paying tax which they ought rightly to be paying, in much the same way that not every dual X/US citizen who pays US tax on their US income and Country X tax on their Country X income is doing it primarily in order to get out of paying tax which they ought rightly to be paying. And not every person who lives or has lived in more than one country and receives income from more than one country has deliberately arranged for that to be the case solely or mainly in order to be able to pay less tax than they would pay if they were receiving income from only one country.
Maybe the delay in the Supreme Court vote is pushing legislation off the table.
The Tax Reform 2.0 bills are scheduled for House votes today and tomorrow, apparently:
https://www.cnbc.com/2018/09/26/us-house-to-vote-friday-on-individual-tax-cuts.html