MT: US Tax for NRA (Non-Resident Aliens)

[apple123]

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Note added by Admin. Please see the following thread also to get a better handle on the issue.

US Tax on IRA/401(k)/Pension Withdrawal by NRA
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Admin notes:

NRA = Non-Resident Alien

What Does Non-Resident Alien Mean?
A non-U.S. citizen who doesn't pass the green card test or the substantial presence test. If a non-citizen currently has a green card or has had a green card in the past calender year, he or she would pass the green card test and would be classified as a resident alien. If the individual has resided in the U.S. for more than 31 days in the current year and has resided in the U.S. for more than 183 days over a three-year period, including the current year, he or she would pass the substantial presence test and also be classified as a resident alien.

[INDENT][INDENT]Investopedia explains Non-Resident Alien
Resident aliens are taxed on all earned income as if they were U.S. citizens, but a non-resident alien is not taxed in the same way. For a non-resident alien, only income that is generated from U.S. sources, excluding certain investments such as stocks, is subject to taxation. For example, if you live in England and own a company that operates in the U.S., but you have not been to the U.S. for five years and don't have a green card (a non-resident alien), the income generated by the business will be subject to U.S. tax. Dividends are taxed at 30% for every non-resident alien, while capital gains are not subject to U.S. tax.
[/INDENT][/INDENT]
Those who return to India in H1B becomes NRA immediately or after a year based on their date of return.

Green Card holders and USC returning to India are considered as "residents" for tax filing purpose and not Non-Resident Aliens.

Green card holders once they surrender the green card, will become NRA. For the year when the green card is surrendered, they are still considered as "Residents".

Indian residents ( never been NRI) also can open and maintain accounts in USA. They will be treated as NRA for tax purposes by US.

All tax questions related to NRA goes in this thread.

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The post that follows below here is the post my member
apple123
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I returned to India on Jan 27th 2006. My status was H1B in US. Since I worked for only 27 days in US, I think I should file as non resident on 1040NR form to claim refund.

I had ~$6000 salary reported on W2, made ~$700 Long term capital gain, $200 ordinary and qualified dividends (1099-DIV), $70 interest income (1099-INT).

I could not report my non resident status with w8BEN in time, so I received 1099s.

I have now prepared 1040NR and Schedule D.

My question now for filing is that with 1040NR, which all documents out of all the ones I have, do I need to send alongwith 1040NR to IRS ?(since I am doing paper based filing this time.)

1) W2
2) 1099 DIV
3) All 1099 INTs
4) 1099- B
5) Schedule D
6) Any other worksheet like "Qualified Dividend & capital gain tax worksheet" from Page 19 of 1040NR instructions
7) Schedule A from page 3 of 1040NR
8) Schedule B (Interest & ordinary dividends) . I was looking at my year old tax returns (1040) and found this schedule, but did not see it in 1040NR. Do I still need to build and attach Schedule B now ?


9) Also, 1040 NR has 5 pages. I am assuming I need to send all 5 even if I have not filled anything on Page 4. Right ?
10) I have not filled anything on page 4("Tax on income not effectively connected to US trade or business"). I hope that is ok.
11) On 1040NR, Page 5, Question D, what should I enter as my current non immigrant status. If I am filing 1040NR, it iteself means I am a non resident of US, so I am confused why is this being asked and what should be entered here. I read the instructions as well but it says that I should enter my status from I-94. I don't have any I -94 now that I am in India.
12) On 1040NR, Page 5, Question E, again as per instructions, the date of entry related to current non immigrant status should be entered. I have entered and left USA 3-4 times in last 6 years. Which date, if any, should be enetered ?
13) Does 1040NR, Sch D, and other forms need to printed back to back or one- sided ?

I would truly appreciate the response from Gurus.

Thanks,
Sahil
===========================
Note added by Admin. Please see the following thread also to get a better handle on the issue.

US Tax on IRA/401(k)/Pension Withdrawal by NRA

[Desi]

My question now for filing is that with 1040NR, which all documents out of all the ones I have, do I need to send alongwith 1040NR to IRS ?(since I am doing paper based filing this time.)

1) W2
2) 1099 DIV
3) All 1099 INTs
4) 1099- B
5) Schedule D
6) Any other worksheet like "Qualified Dividend & capital gain tax worksheet" from Page 19 of 1040NR instructions
7) Schedule A from page 3 of 1040NR
8) Schedule B (Interest & ordinary dividends) . I was looking at my year old tax returns (1040) and found this schedule, but did not see it in 1040NR. Do I still need to build and attach Schedule B now ? [/quote]

1) W2 (Page 1 of Form 1040NR left of lines 1 to 7 has the answer)
2) 1099 DIV (No need to send)
3) All 1099 INTs (No need to send)
4) 1099- B (No need to send)
5) Schedule D (No need to send - attach a separate note that 1099-B was for stock sales that exempt to you as NRA from taxes and 1099-B was sent because the broker did not had W8-BEN on file. Title of the note shoudl be 1099-B explanation).

6) Any other worksheet like "Qualified Dividend & capital gain tax worksheet" from Page 19 of 1040NR instructions (No need to send)
7) Schedule A from page 3 of 1040NR (Page 3 is part of the form. When you file the form, you are required to send the complete form)

8) Schedule B (Interest & ordinary dividends) . I was looking at my year old tax returns (1040) and found this schedule, but did not see it in 1040NR. Do I still need to build and attach Schedule B now ? (Your interest if from the banks should be tax exempt and not reported - attach an explantion for 1099-INT that the interest is not effectively connected with the conduct of US trade or business)

9) Also, 1040 NR has 5 pages. I am assuming I need to send all 5 even if I have not filled anything on Page 4. Right ?

Yes, even though the immigration agent may want to see only two pages of your passport, you need to give the whole passport. You have to file form 1040NR. Form 1040NR is five pages not 4. I would not consider filing four pages as filed.

10) I have not filled anything on page 4("Tax on income not effectively connected to US trade or business"). I hope that is ok.

Your dividends are to be listed on page 4. (Attache a note explaining that 1099-DIV is being reported on page 4 as it is income not effectively connected with the conduct of US trade or business and 1099-DIV was received because the broker did not had the form W8-BEN which since then has been filed / submitted to the broker).


11) On 1040NR, Page 5, Question D, what should I enter as my current non immigrant status. If I am filing 1040NR, it iteself means I am a non resident of US, so I am confused why is this being asked and what should be entered here.

Yours is not to question why but to do or die. The instructions are very explicit as to what to enter. Line D asks "Type of entry Visa" write in your entry visa type - check the instructions for this line and see, it is very clear.

Regarding current non immigrant status on line D, enter "left USA permanently on Jan 27th 2007 - H1B ended / revoked - This is your current non immigrant status for year 2006.

12) On 1040NR, Page 5, Question E, again as per instructions, the date of entry related to current non immigrant status should be entered. I have entered and left USA 3-4 times in last 6 years. Which date, if any, should be enetered ?

The instructions say the entry date on the most recent form I-94.

13) Does 1040NR, Sch D, and other forms need to printed back to back or one- sided ?

One sided. :emsmileo:

[Sid_2007]

Hello gurus... bobus, desi,

Please help urgently :emcrook: :emcrook:

I have one question regarding substantial presence test. I completed filing for year 2006 and am almost about to mail my return when I looked at publication 519.

here, on page 4, it mentions the substantial presence test as:
1) 31 days during current year
2) 183 days during 3 year period.

I R2I'd on may 30, 2006. by this test, I pass the substantial presence test. there is also an example here.

Then there is antoher page Figure 1A on page 5 to decide whether you are resident or non-resident alien. Here there are 2 other conditions:

3) about being in the US for 183 days during 2006.
4) about having a closer relationship to a foreign country

I do not pass (3). I spent 120 days in 2006. And (4) depends. I'll file RNOR most likely for India year ending March 31, 2007.

So am I a resident or not? I finished all the work for filing 1040 and California 540NR and now I'm wondering if I did everything wrong??? :emcry: :emcry:

[Desi]

Sid,

I will move these posts to one of the other threads later.

Go to pub 519 and look up for the definition of Tax home and closer connection. The tax home to be India, you should have had the tax home their for the entire 2006, else you fail the test and have to file as resident.

[Desi]

[PDF]
IRS Tax Seminar For U.S. Citizens Residing Abroad

[Sid_2007]

Sid,

I will move these posts to one of the other threads later.

Go to pub 519 and look up for the definition of Tax home and closer connection. The tax home to be India, you should have had the tax home their for the entire 2006, else you fail the test and have to file as resident.[/quote]

Desi,
Thank you.

I found the description of tax home which said that "it should be in existence for the entire current year". as i filed my india taxes as non-resident (with minimal income) for march 31, 2006, i infer that this is not my tax home for first 3 months of 2006. this is because tax home is described as one that is the main place of business or employment, which India wasn't for whole of 2006.

Is my understanding correct?

thank you very much, desi.

[SPD]

Hi,

Please answer following questions, if those are elsewhere please direct me with proper links.

1. I was in US since Feb 2002 to May 2006. Returned on May 31st 2006.

2. Can I e-file US Tax return for year 2006? or do I need to post printed copy to IRS?

3. I have filled all information in Turbotax and have query about address. Which address needs to be give while e-file? I plan to give foreign address of my friend. Is that a problem? Also I have a active bank account for Direct deposit for refund.

4. I got lumpsum relocation benefit in INR which was tax deductible. Is there any impact or benefit of filing return either in US or in India?

5. While filing US return do I need to mention any salary income I got in INR after I returned to India? for period June 2006 to March 2007?

6. I read somehwere about foreign earned income credit what is that? Am I eligible?

7. I plan to file return in India for period June 2006 to March 2007? Is that right? Can I claim any other benefits ?

8. I have bought a house in India, is there a benefit for this for filing US return?

9. I was in US for 183 days in last 3 years. Is there a impact or can I claim for anything on US or Indian tax return?

Some questions you might think they are silly but Gurus, please reply.

I am awaiting for your answers.

Thanks & Regards
SPD

[SPD]

Please reply to my earlier post.

Thanks in advance.

[chaloIndia]

I am planning my R2I later around November this year. I am currently on H1B. I would like to transfer my 401k and mutual fund portfolio within 2 years of my return, while taking maximum possible tax advantages.

So here is what I understand so far, please correct me if I am wrong.
1) For first two years I will have RNOR status in India i.e. no tax for income in US.
2) For 2007 I will be filing as resident in USA.
3) For year 2008 onwards I will file as NRA.
a. NRA implies 0% Capital Gain tax.( What about Dividend?)

Based on this I have planned (again let me know if it makes most sense):
4) I will cash my mutual funds in year 2008, to take advantage of NRA+RNOR status.

Things I am unsure about:
5) How do I handle my 401k. What are the tax rules regarding 401 withdrawal with NRA+RNOR status.
6) Some where I read it is beneficial to convert my 401k to IRA. What are the advantages ,and tax rules regarding IRA.
7) If I have 50K dollars in 401k when R2I. when and what amount should I withdraw to get maximum tax advantages during RNOR, and howmuch tax ( including penalty) would I end up paying.
8) I am married, and my wife is on H4, and all my portfolio (401k and mutual funds) are under my name. How to take advantage to married status when filing as NRA.

I know that is a lot of question, but this is one area regarding R2I that I am most confused about. I would appreciate any insights, examples or personal experiences.

[srig]

chaloIndia,
I am in the same boat (H1B with R2I plans in Dec'07). My comments to your questions are inline, although it would be great if the experts can correct/clarify.

I am planning my R2I later around November this year. I am currently on H1B. I would like to transfer my 401k and mutual fund portfolio within 2 years of my return, while taking maximum possible tax advantages.

So here is what I understand so far, please correct me if I am wrong.
1) For first two years I will have RNOR status in India i.e. no tax for income in US.

- I hope you have calculated your RNOR period and not just assuming 2 years.

2) For 2007 I will be filing as resident in USA.
3) For year 2008 onwards I will file as NRA.
a. NRA implies 0% Capital Gain tax.( What about Dividend?)

- Once W8-BEN is filed with the broker, US will not tax dividends either. India begins taxing them after RNOR period.

Based on this I have planned (again let me know if it makes most sense):
4) I will cash my mutual funds in year 2008, to take advantage of NRA+RNOR status.

- Makes sense. I am planning to sell and repurchase my funds so as to adjust my cost basis for Indian taxes after RNOR.

Things I am unsure about:
5) How do I handle my 401k. What are the tax rules regarding 401 withdrawal with NRA+RNOR status.

- I have heard conflicting answers for this in the forum, although most folks believe you will be taxed at the flat treaty rate i.e. 25% + 10% penalty.

6) Some where I read it is beneficial to convert my 401k to IRA. What are the advantages ,and tax rules regarding IRA.

- I am not aware of any benefits of converting if it is being held for a short period, other than having a choice of broker and investment options.

7) If I have 50K dollars in 401k when R2I. when and what amount should I withdraw to get maximum tax advantages during RNOR, and howmuch tax ( including penalty) would I end up paying.

- Again, if it is treated as non-ECI and you are paying 25% + 10%, the amount withdrawn may not matter. Desi/Bobus, please correct me if I am wrong.

8) I am married, and my wife is on H4, and all my portfolio (401k and mutual funds) are under my name. How to take advantage to married status when filing as NRA.

- Since you do not get exemptions, deductions nor are 401(k) withdrawals treated as ECI, you are paying a flat tax rate. So, it should not matter how it is split between you and your wife.

I know that is a lot of question, but this is one area regarding R2I that I am most confused about. I would appreciate any insights, examples or personal experiences.[/quote]