June 15 is a big day.
Yes, I know it's "Friends" co-star Courteney Cox's 35th birthday and it's also the day that Vice President Dan Quayle erroneously instructed a Trenton, N.J., elementary school student to spell "potato'' as "potatoe'' during a spelling bee eight years ago.
But, more importantly, it's the day U.S. citizens living and working outside the U.S. or Puerto Rico must file their 1999 U.S. income tax return.
In addition, if you're a nonresident alien -- a person who isn't a U.S. citizen and doesn't spend more than 183 days in the U.S. -- and you are required to file a
-- U.S. Nonresident Alien Income Tax Return
, as long as you did not receive wages that were subject to U.S. withholding, your tax return is due by midnight on June 15 as well. (If you received U.S. wages, your tax return was due back in April.)
While you won't owe a late-filing fee if you file your tax return by June 15, you'll still owe interest on your balance due from April 17 until you file your return. And remember, you have to pay your balance due and any interest in U.S. dollars. The IRS does not convert money. Check out our previous
column for more good tax tips for U.S. citizens living abroad.
We'll address some overseas tax questions today but if you have any other queries, send them in to the
Tax Forum and I'll try to answer them in Tuesday's column.
But First, Another June 15 Reminder
Second-quarter individual estimated tax payments are due by midnight June 15 for U.S. citizens regardless of where in the world you live.
Nonresident aliens (NRAs) who earn U.S. income that isn't subject to withholding may owe U.S. estimated tax payments as well. For instance, let's say you're a NRA who is an independent consultant for a U.S. company. If the company does not withhold tax on the income you earn, you may need to make estimated tax payments. Unlike U.S. citizens, your first payment is due June 15.
You should make estimated tax payments if, after withholding and credits, you still will owe at least $1,000. Then, if your 1999 adjusted gross income was below $150,000, your estimated tax payments must equal either 90% of your 2000 taxes or 100% of the tax you paid in 1999. If your 1999 income was more than $150,000, you must pay either 108.6% of your 1999 tax, or opt for 90% of the current year's tax. Generally, it's safer to use last year's tax bill as your litmus test, because if your estimation for 2000 is off, you'll owe underpayment penalties.
U.S. citizens must use
-- Estimated Tax for Individuals
, whereas NRAs should use
-- U.S. Estimated Tax for Nonresident Alien Individuals
Everyone should have 50% of his or her tax balance paid in by June 15. Since this is NRAs' first payment, they must pay in one-half by Thursday, says Alicia Afalonis, an editor at the
, an information provider to tax professionals. Then they'll follow the same schedule as U.S. citizens for the rest of the year: another 25% due on Sept. 15 and the balance due on Jan. 15, 2001.
Trading Tips for Nonresident Aliens
I am a Slovenian subscriber of TheStreet.com. After getting some virtual experience, I would like to start real trading. However, before I start I would like to know some details basically regarding taxes. As a foreign citizen, do I have to pay any taxes on profit? If so, when and how is it handled? Are there any other tricks I have to be aware of? -- Aleksander Razmovski
I'm assuming that you're not a U.S. citizen and that you don't spend more than 183 days in the U.S. If that's true, then you are a nonresident alien for U.S. tax purposes.
As an NRA, you don't pay U.S. tax on capital gains or portfolio interest. Dividends are taxable, and the tax is usually withheld at a 30% rate before the dividend is distributed to the foreigner.
The U.S. has income-tax treaties with foreign countries, which allow for lower withholding rates. At this time, there is no treaty in effect between the U.S. and Slovenia. So your U.S. broker will keep 30% of your dividend income for U.S. tax purposes.
The U.S. and Slovenia actually signed an
income-tax treaty in 1999. "While the Senate ratifies it, it isn't in effect and there's no telling how soon the treaty will take effect," notes Afalonis.
The good news is when it becomes effective, your dividend withholding will drop to 15%.
Assuming you just have capital gains, interest or dividend income, and no other income connected to the U.S. -- like consulting fees or partnership income -- then you would not have to file a U.S. income tax return either, says Linda Watson, a partner in global employment solutions practice at
Ernst & Young
Here are a few more trading tips for NRAs:
- If you spend any time in the U.S. during the year, be sure it's not more than 183 days, reminds Afalonis. If you spend more than 183 days, you will be considered a resident alien for tax purposes and will owe tax on everything.
- Remember, it's not always advantageous for nonresident aliens to buy mutual funds. When short-term capital gains and dividends get rolled up into one big dividend distribution, the whole thing becomes subject to ordinary income tax, regardless of citizenship. NRAs may be able to get a refund for the tax withheld on short-term capital gains if they get a Form 1099 -- the form that reports the mutual fund's dividend distribution and breaks out short-term capital gains and dividends. But then they have to file a U.S. tax return just to get the excess tax back. Check out this previous Tax Forum for more details.
What Do I Do With a Form 1042-S?
My brother is not a U.S. citizen and does not reside in the U.S. He has an account with his money manager. All his paperwork gets sent to my address here in the States and I forward to him. He has received a Form 1042-S -- Foreign Person's U.S. Source Income Subject to Withholding from the broker firm, through which the money manager places my brother's investments. What does he need to do with this form? -- Rosa Gotcher
Form 1042-S is a summary from his broker of how much was withheld from his dividend income for the year.
Assuming your brother's U.S. income consists only of capital gains, dividend and interest income, he doesn't have to file a U.S. tax return. So the form is for informational purposes, says Afalonis. If he does have to file a U.S. tax return, he should attach it to the return.
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TSC Tax Forum aims to provide general tax information. It cannot and does not attempt to provide individual tax advice. All readers are urged to consult with an accountant as needed about their individual circumstances.