Tax: Non-US Persons and Entities: Form 1042-S

Form 1042-S reports US source income earned by non-US persons subject to US withholding tax, including interest, dividends, substitute payments in lieu and fees earned (paid to and for account managers) on your account for the year.  You may receive multiple 1042-S forms reporting different types of income.  This information is also reported to the IRS. Each type of income is reported on a separate form using a code in Box 1. Common codes are:

 

Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Tax: Non-US Persons and Entities: How to Access Tax Forms

Your tax forms, including Form 1042-S, Annual Activity Statement and Dividend Report, are available in electronic format.  To access forms, log into Account Management and click Reports > Tax Forms. If you have the old Account Management format, log in and select Tax Forms from the Report Management menu. Please review the information on your forms.

Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Tax: Non-US Persons and Entities: Where IB Sends Tax Withheld

Interactive Brokers remits the tax withheld to the US Treasury Department.

Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Tax: Non-US Persons and Entities: US Withholding Tax on Dividends and Substitute Payments in Lieu

US tax law requires the withholding of tax for non-US persons (non-resident aliens) at a rate of 30% on payments of US source stock dividends, short-term capital gain distributions and substitute payments in lieu.  You may be eligible for a reduced rate of withholding if there is a treaty in effect between your country of tax residence and the US, and IB is able to associate the payment with a valid Form W-8.  Refer to IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for more information.

Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Non-US Persons and Entities: What is meant by US source income?

In general, US source income refers to dividend and interest income earned on securities issued by US companies or US registered mutual funds as well as interest earned on US Treasury obligations and US Government agency securities. Non-US persons who receive US source income are subject to US tax withholding.  IB is required to report US source income on Form 1042-S (See the next FAQ).  Refer to IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities and Publication 519, US Tax Guide for Aliens for more information.

Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Non-US Persons and Entities: Can I change the residency information on my account?

IB will consider a change in residency on your account only on a case by case basis, if the proper documentation requirements have been met.  For example, you will be required to submit evidence of a change in residency status, a copy of a green card or document evidencing a change of residency or citizenship.  Please contact IB’s customer Service department for assistance.

Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Non-US Persons and Entities: If I am a non-US person, may I complete a Form W-9?

US residency status for tax purposes determines the appropriate tax certification that applies to your account.  US citizens and legal residents (Green Card holders) are required to complete Form W-9 regardless of residence.  All US formed entities and US operations of foreign entities complete Form W-9.  If you hold a permanent work Visa and reside in the US you may also complete a W-9.

All others are considered to be non-US persons (also known as nonresident aliens) and will be required to complete a Form W-8.  Foreign students and teachers living in the US who maintain residency in their home countries are required to complete Form W-8.

The rules are complex in this area.  Refer to IRS Publication 519, US Tax Guide for Aliens, for more information.

Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Non-US Persons and Entities: If I do not complete a Form W-8, what will happen?

If IB does not have a valid Form W-8 on file, you are presumed to be a US person without a proper tax certification and IB is required to backup withhold at a rate of 28% on interest, dividends and payments in lieu, as well as gross proceeds.

Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Tax: Non-US Persons and Entities: Forms W-8 and 1099

All non-US persons and entities are required to complete an IRS Form W-8 to certify their country of tax residence.  If you complete Form W-8 you will not receive Form 1099.  However, you may receive Form 1042-S which reports interest payments, dividends, and substitute payments in lieu and applicable US tax withholding, thereon, from US securities paid to foreign investors. Refer to IRS Publication 519, US Tax Guide for Aliens, for more information.

Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Non-US Persons and Entities: How do I determine whether for tax purposes I am a nonresident alien?

Generally, if you are not a US citizen you are considered a nonresident alien by the IRS unless you meet one of the following criteria:

Green card test:  You are a lawful permanent resident as determined by Immigration, that is, you have been issued a resident alien registration card (“Green Card”) by US Immigration Services, or

Substantial presence test: You are an individual with a valid nonimmigrant visa who resides in the US for a certain required period of time.

The rules are complex in this area.  An exception may apply if you are a student, researcher or teacher or you hold a nonimmigrant Visa.  Refer to IRS Publication 519, US Tax Guide for Aliens, for more information and consult your tax advisor.

Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

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