I am a nonresident alien and I was here less than 180 days during the year. Do I have to have withholding tax on capital gains and dividends I receive from stock trading?
Generally, capital gains received by a nonresident alien who does not reside in the United States for 183 days or more are not taxable. Dividends are withheld upon at the 30% or reduced tax treaty rate. Generally, interest received by a nonresident alien from U.S. sources that is not connected with a U.S. trade or business is not taxable. However there are exceptions to this rule. Please refer to Publication 519, U.S. Tax Guide for Aliens. If your withholding is not at the correct tax rate, you would have to file Form 1040NR, U.S. Nonresident Alien Income Tax Return to receive a refund or pay any additional amount of tax due.
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I entered the U.S. in August and I have a J-2 VISA with an Employment Authorization (work permit). Can I be considered as a U.S. resident for tax purposes under the Substantial Presence Test? Because my VISA does not allow me to stay in this country am I subjected to Social Security tax and Medicare tax?
You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:
- 31 days during the current year, and
- 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
- All the days you were present in the current year, and
- 1/3 of the days you were present in the first year before the current year, and
- 1/6 of the days you were present in the second year before the current year.
For purposes of the substantial presence test, certain days of physical presence do not count. Please refer to Publication 519, U.S. Tax Guide for Aliens, for additional information.
In general, U.S. social security and Medicare taxes apply to payments of wages for services performed as an employee in the United States, regardless of the citizenship or residence of either the employee or the employer. In limited situations, these taxes apply to wages for services performed outside the United States. Your employer should be able to tell you if social security and Medicare taxes apply to your wages.
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Under my VISA as a temporary nonresident alien, I'm not subject to social security and Medicare withholding. My employer withheld the taxes from my pay. What should I do to get a refund of my social security and Medicare?
If social security tax was withheld in error from pay received which was not subject to the tax, contact the employer who withheld the tax for reimbursement. If you are unable to get a refund from the employer, file a claim for refund with the Internal Revenue Service on Form 843, Claim for Refund and Request for Abatement.
Attach the following to your claim:
- a copy of the [Form W-2], Wage and Tax Statement, to prove the amount of social security tax withheld,
- a copy of INS Form I-94, Arrival/Departure Record,
- a copy of INS Form I-538, Application of Nonimmigrant Student (F1) for Extension to Stay, School Transfer or Permission to Accept or Continue Employment, and
- a statement signed by the student stating that he/she has asked the employer for reimbursement of social security tax withheld in error but has been unable to get a refund.
File the claim for refund (with attachments) with the IRS office where the employer's returns were filed. If you do not know where the employer's returns were filed, file the claim with the Internal Revenue Service Center, Philadelphia, PA 19255
For more information, refer to Publication 519, U.S. Tax Guide for Aliens.
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I am a U.K. resident and I need to recover withholding tax on a U.S. capital gain. Do I need an ITIN?
Yes, you need to secure an Individual Taxpayer Identification Number, or ITIN. To secure an ITIN, you must file Form W-7, Application for IRS Individual Taxpayer Identification Number. Along with the completed Form W-7, you must submit at least two identity documents. These documents are needed to verify both your identity and your foreign status; one should include a recent photograph. If you have one document that verifies both, such as a passport, then that one document is enough.
You can apply for your ITIN by mail or in person at most IRS offices in the U.S. If you apply in person, your documents will be reviewed and returned to you. Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number, has a list of IRS offices abroad which can accept Form W-7. If you apply by mail, use the address shown in the W-7 instructions and the Publication 1915. Once you have applied, you should get acknowledgment that your Form W-7 was received within 14 days; you should receive your ITIN within 5 to 6 weeks.
References:
- Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Corporations
- Publication 519, U.S. Tax Guide for Aliens
- Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number
- Form W-7, Application for IRS Individual Taxpayer Identification Number
- Tax Topic 857, Individual Taxpayer Identification Number - Form W-7
I am a foreign citizen and resident from the European Union. I plan to buy U.S. stocks, but what tax will I have to pay if I have earnings on stocks?
U.S. source dividend income is subject to 30% tax rate when paid to nonresident aliens. A lower rate may apply to residents of a country for which the United States has an income tax treaty.
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I am a nonresident alien. Our broker withholds 30% tax on dividends and interest. Can I get this tax back since I already owe tax in my resident country on overseas income?
Generally, this type of income paid to nonresident aliens is taxable at the 30% or lower treaty rate. If your country has a tax treaty with the U.S., you may have a reduced rate of tax. If that is the case, you would have to file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), and attach it to Form 1040NR, U.S. Nonresident Alien Income Tax Return, to claim a refund of federal income taxes withheld.
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