Claiming tax back from American IRS system
Discussion
I recently left work, in the USA oil sector, and withdrew some money I had in their 401K system from years ago. Even though I have the correct W8-BEN tax avoidance document in place they still 'withheld' 30% of my money in case the IRS decide they want a piece of the action. They told me to contact a lawyer to sort it out, but I have no idea where, how or whom to speak to. Does anybody have any experience with the tax system over there?
I've heard that the IRS is a monster, and they like to grab your money then make you fight to get it back. And of course I don't want to pay a tax lawyer 75% of what I get back in fees.
They took $22,000 off me, and I want it back! At least half of the money is what I paid in, so I shouldn't be paying tax on my own contributions, but I need to prove that to someone, somehow.
I've heard that the IRS is a monster, and they like to grab your money then make you fight to get it back. And of course I don't want to pay a tax lawyer 75% of what I get back in fees.
They took $22,000 off me, and I want it back! At least half of the money is what I paid in, so I shouldn't be paying tax on my own contributions, but I need to prove that to someone, somehow.
Similar situation looming here, comparable sums left in a 401K from years ago. Fidelity tell me they have an obligation to withhold the 30% for non-residents (it would be 28% for a resident).
The first thing I think is to stop thinking of the whole pot as our money. The 401K is a tax-deferred scheme, and the time has come for the IRS to collect on those deferred taxes. I'm not sure what a lawyer would bring except extra expenses to tell you that (please let me know if you find out otherwise!)
What you maybe able to do, if you live somewhere with a dual taxation agreement with the US (as the UK has), is offset that US withholding against your local taxes. The downside to that is that if you were to declare in the UK and had already hit the higher rate tax band, you could stand to end up paying another 10%. So timing of funds repatriation is key, in terms of maximising tax allowances. Which can be tricky as there seems to be a short window to take out 401K funds at the age of 59 1/2.
Disclaimer: I am not a tax attorney, accountant or US resident
The first thing I think is to stop thinking of the whole pot as our money. The 401K is a tax-deferred scheme, and the time has come for the IRS to collect on those deferred taxes. I'm not sure what a lawyer would bring except extra expenses to tell you that (please let me know if you find out otherwise!)
What you maybe able to do, if you live somewhere with a dual taxation agreement with the US (as the UK has), is offset that US withholding against your local taxes. The downside to that is that if you were to declare in the UK and had already hit the higher rate tax band, you could stand to end up paying another 10%. So timing of funds repatriation is key, in terms of maximising tax allowances. Which can be tricky as there seems to be a short window to take out 401K funds at the age of 59 1/2.
Disclaimer: I am not a tax attorney, accountant or US resident
King Herald said:
I recently left work, in the USA oil sector, and withdrew some money I had in their 401K system from years ago. Even though I have the correct W8-BEN tax avoidance document in place they still 'withheld' 30% of my money in case the IRS decide they want a piece of the action. They told me to contact a lawyer to sort it out, but I have no idea where, how or whom to speak to. Does anybody have any experience with the tax system over there?
Not a tax lawyer but have a little experience. Firstly the W8 BEN 'simply' tells them that the beneficial owner of an account is not a US resident and therefore should not be subject to withholding taxes, typically tax on interest on a bank account, because as a non resident you are not ordinarily subject to such taxes, it does not mean you don't have to pay the US taxes you are still subject to! A 401k is a personal pension; you can't withdraw money from it until you reach retirement age (IIRC 59.5), without paying taxes and penalties, just like all other pensions.. If you have already made a distribution then you likely owe both income tax and 10% penalty tax. If you're lucky the 30% withholding covers the tax due but you might owe even more, I don't know, you probably have to file a 1040nr and either pay the difference or wait for your refund if the withholding exceeds the tax due. Like all pensions, you pay into a 401k gross, ie pre tax, you can't then withdraw before retirement without paying taxes (and in the US a penalty).Of course if you are retired you should be able to take distributions (subject to US non resident alien income tax). Contrary to conventional wisdom IME if you write to the IRS and explain the situation I have always had a knowledgeable and helpful response, although it takes many months to get a reply I always got one.
I hope this helps but you really should just call whoever did your US taxes when you lived there, they will understand all the issues far better than me. Just to reiterate you shouldn't rely on anything I say I am not an expert, this is just my understanding having looked at liberating my 401k myself and deciding to leave it there...
Best of luck
Here is the US Embassy list of tax preparers providing services to individuals based in the UK - it's not comprehensive nor can it be considered a recommendation by either the IRS or me:
http://london.usembassy.gov/tax_preparation_servic...
I can make one recommendation, which is not to use Ingleton Partners, as the owner's a knobhead.
http://london.usembassy.gov/tax_preparation_servic...
I can make one recommendation, which is not to use Ingleton Partners, as the owner's a knobhead.
The more I think about it King Herald the less I think there is any way of making a distribution from a 401k without paying a chunk of US tax, regardless of where you live because it is US source income. To throw a further spanner in the works you may also owe local taxes ,where you are resident, on foreign income depending on your personal tax rate and double tax treaty. If you withdrew 70 odd grand 20 sounds about right give or take for federal tax plus penalty.
Edited by anonymous-user on Friday 11th December 14:57
twoblacklines said:
You just need an EIN number, which tells the IRS that the 30% doesn't apply to you.
Ein is just your employee identification number, it doesn't do anything, it doesn't stop witholding tax and it certainly doesn't allow you to make tax free distributions from a 401k.If you're not an American with an SSN (Social Security Number) you need an ITIN (Individual Taxpayer Identification Number) and then you can start getting into the tax system. This involves both State and Federal returns and taxes.
Uncle Sam is pretty efficient with his "withholding taxes" and rakes in a great deal of cash from foreigners who think they're successfully evading taxes over the years in USA. They suffer the withholding taxes and find they can't reclaim what's been deducted because they're not in the system and daren't enter the system late.
Uncle Sam is pretty efficient with his "withholding taxes" and rakes in a great deal of cash from foreigners who think they're successfully evading taxes over the years in USA. They suffer the withholding taxes and find they can't reclaim what's been deducted because they're not in the system and daren't enter the system late.
fblm said:
Ein is just your employee identification number, it doesn't do anything, it doesn't stop witholding tax and it certainly doesn't allow you to make tax free distributions from a 401k.
It worked perfectly for me. I applied for an EIN and then submitted it to Amazon and now the IRS doesn't withhold 30% anymore.twoblacklines said:
fblm said:
Ein is just your employee identification number, it doesn't do anything, it doesn't stop witholding tax and it certainly doesn't allow you to make tax free distributions from a 401k.
It worked perfectly for me. I applied for an EIN and then submitted it to Amazon and now the IRS doesn't withhold 30% anymore.Ozzie Osmond said:
If you're not an American with an SSN (Social Security Number) you need an ITIN (Individual Taxpayer Identification Number) and then you can start getting into the tax system. This involves both State and Federal returns and taxes.
Uncle Sam is pretty efficient with his "withholding taxes" and rakes in a great deal of cash from foreigners who think they're successfully evading taxes over the years in USA. They suffer the withholding taxes and find they can't reclaim what's been deducted because they're not in the system and daren't enter the system late.
I already have an ITIN and my company pays my income tax every year, and do so in any country I work other than UK. Uncle Sam is pretty efficient with his "withholding taxes" and rakes in a great deal of cash from foreigners who think they're successfully evading taxes over the years in USA. They suffer the withholding taxes and find they can't reclaim what's been deducted because they're not in the system and daren't enter the system late.
Anyway, thanks for the info guys. Bearing in mind I have not actually paid ANY income tax, ANYWHERE, since 1992, due to the various company contracts I worked with, I think I may just write off the $22k.
My US tax returns were always dealt with by some company called Deloitte, and I have contacted them about it all, but they have not sent me any information, just acknowledged receipt of my query..... Sounds like every American company I have ever sent an email query to.
The advice you got is good considering you cashed a 401K
I would more question the fact that you were in a tax deferred 401K if you weren't liable to US taxes.
(enabling them to grab some
)
Even if you had held it til you are 59 1/2 you are still liable for tax at your personal rate as it's tax defferred not tax free
Had you got advice you could have rolled it over or converted it to a Roth, it would have been less tax and no penalty and would then continue to grow tax free.
Has 30 days expired?????
What company?
I would more question the fact that you were in a tax deferred 401K if you weren't liable to US taxes.
(enabling them to grab some
)Even if you had held it til you are 59 1/2 you are still liable for tax at your personal rate as it's tax defferred not tax free
Had you got advice you could have rolled it over or converted it to a Roth, it would have been less tax and no penalty and would then continue to grow tax free.
Has 30 days expired?????
What company?
Edited by jeff m2 on Saturday 19th December 02:32
I worked for Slumberger, WesternGeco division, but the 401K was locked into Hewitt. They gave minimal advice about what we could or couldn't do, and being as I am non-American it was even harder. Simply calling Hewitt got a 'Please enter the last four digits of your SS number' and you could get no further than that. Then I had to email my ex-employee to get more numbers, of which one eventually worked.
Speaking to American phone operatives about legal and financial issues is mind bendingly frustrating, as they seem to work off a multi-choice answer sheet and are usually incapable of normal conversation.
Then there were issues because I was still employed as far as they were concerned, so more messing about getting SLB to contact them....
So many people have been laid off over the last two years you would think SLB had SOME idea of the process involved, but it seems to be a learning curve with every person who goes. I've been in touch with several other ex-workmates, and they all had the same issues.
I was just glad to be able to grab what money I could, when I could, as I didn't have much of a nest egg to tide us over until the pensions and other stuff came in. I'd heard stories of guys waiting six months at home before they even got a cent from our company. I didn't have enough cabbage in the bank to do that. Two houses, four cars, but not much folding stuff to hand.....
Speaking to American phone operatives about legal and financial issues is mind bendingly frustrating, as they seem to work off a multi-choice answer sheet and are usually incapable of normal conversation.
Then there were issues because I was still employed as far as they were concerned, so more messing about getting SLB to contact them....
So many people have been laid off over the last two years you would think SLB had SOME idea of the process involved, but it seems to be a learning curve with every person who goes. I've been in touch with several other ex-workmates, and they all had the same issues.
I was just glad to be able to grab what money I could, when I could, as I didn't have much of a nest egg to tide us over until the pensions and other stuff came in. I'd heard stories of guys waiting six months at home before they even got a cent from our company. I didn't have enough cabbage in the bank to do that. Two houses, four cars, but not much folding stuff to hand.....
I think Hewitt use Fifelity.
It would have been possible to set up a roll over IRA with no deduction, Fidelity or any other major like T Rowe price or Vangaurd would do everything
Same for a Roth, a better choice.
You say "yes" they go in and grab the money for you, often with a small bonus for choosing them.
I'm surprised Fidelity didn't contact you so they could your money with them
It also use to be very easy to get a social security number, call them and say I need a SS# so I can pay taxes on my divs and Cap Gains distributions, not sure about that anymore since Homeland Sec took control of everything. Should still be able to get one stamp "not valid for work"
It is possible you actually have a SS# but just don't know it. A 401K usually use it as the prime identifier along with the acc#
Anyway that's all moot now, don't waste the money.....get another car
It would have been possible to set up a roll over IRA with no deduction, Fidelity or any other major like T Rowe price or Vangaurd would do everything
Same for a Roth, a better choice.
You say "yes" they go in and grab the money for you, often with a small bonus for choosing them.
I'm surprised Fidelity didn't contact you so they could your money with them
It also use to be very easy to get a social security number, call them and say I need a SS# so I can pay taxes on my divs and Cap Gains distributions, not sure about that anymore since Homeland Sec took control of everything. Should still be able to get one stamp "not valid for work"
It is possible you actually have a SS# but just don't know it. A 401K usually use it as the prime identifier along with the acc#
Anyway that's all moot now, don't waste the money.....get another car
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