Marcus bank refusing me as if I am US person

eskbanker

BlisteringBarnacles wrote: »

So let us consider UK residents who hold American shares through brokerage accounts - let us assume they never went to the US on long term stays, work etc. Let us say they file a W8-BEN. Question : Will the brokerage firm send them a 1099 or 1042-S at all ?

Answer: for me, no.

However, obviously your circumstances differ (for one thing I don't have a US tax accountant!) so I'm not sure that really moves you forward at all....

bowlhead99

BlisteringBarnacles wrote: »

My Etrade account (opened during my US days) still sends me a 1042-S every year, even tho I have been UK resident for more than a decade and I dont have a green card or US citizenship.

A US financial institution that withholds tax on its foreign customers' income is required to do a 1042-S to report the amounts withheld on those accounts (even the amount withheld is zero for whatever reason). So if you get (e.g.) $100 of dividends on Microsoft shares they will report that you received that and also that they withheld $30 to pay over to the IRS (or in your case $15 because you'll have given the broker a W8BEN to say you are UK resident, and so qualify for the lower tax treaty rate of 15%).

My US tax accountant says that "the 1042-S issued by my US brokerage accounts are shared with the IRS.

That's correct, they have to file the information about what they withheld on their non-resident customers.

This means the IRS is getting at least some of my taxable income information

Yes, they are getting the correct information that you are a UK resident that received $100 of US source dividend income and suffered $15 of US tax withholding.

and is therefore waiting for your tax return.

Well, they are waiting to see if you file a tax return. Just because they're waiting to see if you file one, that doesn't mean you actually have some obligation to file one. Perhaps you will file a return because you are not in fact non-resident. Or perhaps you'll file a return to say that you had too much tax withheld (e.g. you had 15% withheld on your Microsoft dividends but 30% on your IBM dividends due to a broker error). Or perhaps you won't need to file one at all.

When they receive information about someone who *might* want or need to file a tax return, they will keep the information on file, and wait to see if that person does file a tax return; the information on the file would help them review the tax return if one was eventually filled for some reason.

The fact that they have some information about your affairs which might be relevant if you filed a return, doesn't create any obligation whatsoever for you to file a return. Any obligations for you to file returns are in the US tax code and as a non resident you can read publication 519 to see what's relevant for you.

So, I must either file US tax returns or respond to their letters every year.

So, you would file US returns if you had a reason to file (which, if you were simply a UK resident receiving Microsoft and IBM dividends whose US tax obligation was fully satisfied by withholding at source, you wouldn't have a reason to file).

And you would respond to letters if received. Not that the IRS is going to routinely write to residents of other countries who paid small amounts of withholding tax on their Microsoft shares just to say hello.

If a UK bank or broker asks if you are a US resident or citizen and you say 'no, but I'd respond to letters from a foreign tax authority if I believed them to be genuine', that isn't a 'yes'.

is my US tax accountant correct ? if so then everyone who gets 1042-S can end up as "US person".

Everyone receiving 1042-S has some form of US source income. However, the majority of them are not US persons, and are only getting them as a record of what US income they as a *non* US person, received.

I do not want to be a "US person". if I file my W8-BEN on time and my only income in US is stock dividends and bank interest, can I stop filing US tax returns ?

Generally, make sure your W8BEN is not out of date (expires at the December three years after you signed it, or earlier if the information you gave in it is no longer correct). Then assuming your broker is competent, you shouldn't get too much tax withheld - only the correct amounts allowed by the tax treaty.

Whether you need to file a US tax return is set out in publication 519 as I mentioned. For example, other than people running a US business, one type of person who must file is:

A nonresident alien individual not engaged in a trade or business in the United States with U.S. income on which the tax liability was not satisfied by the withholding of tax at the source.

But if your US tax liability *was* fully satisfied by the withholding, you are not that type of person.

Likewise

You also must file if you want to:
-Claim a refund of overwithheld or overpaid tax,

... for example due to broker error or because you didn't give your broker your W8BEN.

If you are only filling a non resident tax return because of some broker error (or your own error in being slack with providing a W-form to your broker), and you later open up a new account with a new UK bank or broker and they ask about your residency status, you are still going to say you are UK resident and not a US citizen or resident (including holder of a 'permanent resident' green card).

"Hi, we're going to be lazy about how we put the wording together on our account opening forms to capture US status. Instead of following the UK regulations and asking whether you are a US citizen or resident, we will have a broader catch-all question: do you file US tax returns?"

"Not if my stockbroker is competent, thanks".

BlisteringBarnacles

bowlhead99, Just wanted to say thank you for the detailed response. Still digesting it but very much appreciated ...


Thanks a lot !!

BlisteringBarnacles

A US financial institution that withholds tax on its foreign customers' income is required to do a 1042-S to report the amounts withheld on those accounts (even the amount withheld is zero for whatever reason).

It is interesting you mention this. I called up 2 brokers : One was Charles Schwab UK and the other was Hargreaves Lansdown UK. I asked them whether I can buy US stocks. With Schwab, they clarified that even tho I am talking to the UK office, my account would be a US dollar account domiciled in the US. With HL, it would be a sterling account and when I wish to buy any US stock, they would convert my sterling into dollar to buy the stock. With both the companies, I would need to file W8-BEN (to take advantage of lower withholding / treaty rates). But while Schwab said they would send me a 1042-S, HL said they will not send me a 1042-S.

My question is : Either way, the brokerage is withholding taxes (30% or 15% if W8-BEN is signed), and presumably the withheld taxes do reach the US Internal revenue Service, so why does the US IRS demand a 1042-S only from US brokerages ? Wouldnt they want to see 1042-S from the likes of HL too ?

In any case, you have already clarified thoroughly that just because I get sent a 1042-S, that does not mean I am obligated to file a tax return, and thanks for that, but I would rather not get a 1042-S.

Also noticed that 1042-S does not mention any capital gains at all. I guess non resident aliens are not liable to capital gains taxes to the USA on US stocks, but my US tax accountant told me that if I spend even a single day in the US as a visitor and happen to sell my shares on that day, then I would be liable for US capital gains taxes. I could not find any article confirming or refuting this so I am not sure. But I would have expected some document to get sent out to me with a copy to IRS about my capital gains. US residents get sent a 1099-B, I suppose. Cant believe that no paperwork gets sent out for non resident aliens and the US IRS is ok with that !

Thanks. Once again, bowlhead99 I would be grateful if you share your thoughts. Cheers

EdSwippet

BlisteringBarnacles wrote: »

My question is : Either way, the brokerage is withholding taxes (30% or 15% if W8-BEN is signed), and presumably the withheld taxes do reach the US Internal revenue Service, so why does the US IRS demand a 1042-S only from US brokerages ? Wouldnt they want to see 1042-S from the likes of HL too ?

The job of a 1042-S is to have income reported both to you and to your own country's tax authorities. You can thank FATCA for that. A US based broker sends you the 1042-S, and also sends a copy to the IRS, who then (supposedly, under FATCA's 'reciprocity') send details on to HMRC. UK based brokers won't fiddle around with a 1042-S because they already report stuff directly to you and to HMRC using the UK's domestic mechanisms (a dividend 'tax certificate', and so on). And the IRS doesn't need to know about your finances, because you are not American and do not live there.

BlisteringBarnacles wrote: »

... my US tax accountant told me that if I spend even a single day in the US as a visitor and happen to sell my shares on that day, then I would be liable for US capital gains taxes.

Fire them.