US Withholding Tax

US Withholding Tax

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 A UK national/UK resident musician plays in various orchestras and has toured the US for about 20 days during 2011. Earnings were £6000 and tax was deducted at 30% by the US. She is a basic rate taxpayer in the UK and is miffed at the extra amount paid.

She has asked me to register her for US tax and submit a Return for her as a non-resident alien. Looking at various websites there seem to be a number of companies that will do this and they all indicate that 100% of the tax will be refunded "as she is a non-resident".

I don't get it! Tax is withheld because she is non-resident but tax will be refunded because she is non-resident? Is it really as straightforward as these company websites make out?

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By aiwalters
29th Feb 2012 23:45

see the dual taxation agreement

here http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/uktreaty.pdf

see article 16. So as long as earnings are under $20,000, then yes, it can be recovered in full (although it is obviously then taxable in the UK).

Tax is withheld because she is non resident, but WILL BE REFUNDED because of the dual taxation agreement.

What to do:

1) Prepare a 1040-NR tax return

2) Prepare a W-7 (ITIN application). Submit it (with the tax return) either to a Certifying Acceptance Agent (see http://www.irs.gov/individuals/article/0,,id=111081,00.html we're the last one on the list!), or get her passport notorised, and send it with the W-7 to the IRS. (If want to, you could send the passport to the IRS, but wouldn't recommend it). You could also get the embassy in London to accept it.

That's all

Good luck

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By sijolees
01st Mar 2012 11:22

Thank you so much - this is really helpful.

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By aiwalters
01st Mar 2012 12:26

can be prevented

just wanted to point out, that prevention is better than cure. Obviously in the OP's case the tax has already been withheld, but if it's going to happen again, then the solution is to complete form 8233  (http://www.irs.gov/pub/irs-pdf/f8233.pdf) which means that no income will be withheld. An ITIN (or social security number) is required for this, but it is sufficient to enclose a copy of the W-7 form whilst waiting for the ITIN (which takes about 3 months to obtain)

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