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Online ez form Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. Online ez form S. Online ez form Taxpayer Identification NumbersUnexpected payment. Online ez form Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. Online ez form Electronic reporting. Online ez form Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. Online ez form S. Online ez form Real Property InterestForeign corporations. Online ez form Domestic corporations. Online ez form U. Online ez form S. Online ez form real property holding corporations. Online ez form Partnerships. Online ez form Trusts and estates. Online ez form Domestically controlled QIE. Online ez form Late filing of certifications or notices. Online ez form Certifications. Online ez form Liability of agent or qualified substitute. Online ez form Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Online ez form Withholding of Tax In most cases, a foreign person is subject to U. Online ez form S. Online ez form tax on its U. Online ez form S. Online ez form source income. Online ez form Most types of U. Online ez form S. Online ez form source income received by a foreign person are subject to U. Online ez form S. Online ez form tax of 30%. Online ez form A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. Online ez form The tax is generally withheld (NRA withholding) from the payment made to the foreign person. Online ez form The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. Online ez form In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. Online ez form S. Online ez form source income. Online ez form Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. Online ez form NRA withholding does not include withholding under section 1445 of the Code (see U. Online ez form S. Online ez form Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). Online ez form A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. Online ez form However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. Online ez form S. Online ez form person is not required to withhold. Online ez form In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. Online ez form Withholding Agent You are a withholding agent if you are a U. Online ez form S. Online ez form or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. Online ez form A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. Online ez form S. Online ez form branch of certain foreign banks and insurance companies. Online ez form You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. Online ez form Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. Online ez form In most cases, the U. Online ez form S. Online ez form person who pays an amount subject to NRA withholding is the person responsible for withholding. Online ez form However, other persons may be required to withhold. Online ez form For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. Online ez form In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. Online ez form Liability for tax. Online ez form   As a withholding agent, you are personally liable for any tax required to be withheld. Online ez form This liability is independent of the tax liability of the foreign person to whom the payment is made. Online ez form If you fail to withhold and the foreign payee fails to satisfy its U. Online ez form S. Online ez form tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. Online ez form   The applicable tax will be collected only once. Online ez form If the foreign person satisfies its U. Online ez form S. Online ez form tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. Online ez form Determination of amount to withhold. Online ez form   You must withhold on the gross amount subject to NRA withholding. Online ez form You cannot reduce the gross amount by any deductions. Online ez form However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. Online ez form   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. Online ez form In no case, however, should you withhold more than 30% of the total amount paid. Online ez form Or, you may make a reasonable estimate of the amount from U. Online ez form S. Online ez form sources and put a corresponding part of the amount due in escrow until the amount from U. Online ez form S. Online ez form sources can be determined, at which time withholding becomes due. Online ez form When to withhold. Online ez form   Withholding is required at the time you make a payment of an amount subject to withholding. Online ez form A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. Online ez form A payment is considered made to a person if it is paid for that person's benefit. Online ez form For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. Online ez form A payment also is considered made to a person if it is made to that person's agent. Online ez form   A U. Online ez form S. Online ez form partnership should withhold when any distributions that include amounts subject to withholding are made. Online ez form However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. Online ez form S. Online ez form partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. Online ez form If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. Online ez form A U. Online ez form S. Online ez form trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. Online ez form To the extent a U. Online ez form S. Online ez form trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. Online ez form Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. Online ez form (See Returns Required , later. Online ez form ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. Online ez form Form 1099 reporting and backup withholding. Online ez form    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. Online ez form S. Online ez form person. Online ez form You must withhold 28% (backup withholding rate) from a reportable payment made to a U. Online ez form S. Online ez form person that is subject to Form 1099 reporting if any of the following apply. Online ez form The U. Online ez form S. Online ez form person has not provided its taxpayer identification number (TIN) in the manner required. Online ez form The IRS notifies you that the TIN furnished by the payee is incorrect. Online ez form There has been a notified payee underreporting. Online ez form There has been a payee certification failure. Online ez form In most cases, a TIN must be provided by a U. Online ez form S. Online ez form non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. Online ez form A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. Online ez form You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. Online ez form S. Online ez form person. Online ez form For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. Online ez form S. Online ez form person subject to Form 1099 reporting. Online ez form See Identifying the Payee , later, for more information. Online ez form Also see Section S. Online ez form Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. Online ez form Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. Online ez form Wages paid to employees. Online ez form   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. Online ez form See Pay for Personal Services Performed , later. Online ez form Effectively connected income by partnerships. Online ez form   A withholding agent that is a partnership (whether U. Online ez form S. Online ez form or foreign) is also responsible for withholding on its income effectively connected with a U. Online ez form S. Online ez form trade or business that is allocable to foreign partners. Online ez form See Partnership Withholding on Effectively Connected Income , later, for more information. Online ez form U. Online ez form S. Online ez form real property interest. Online ez form   A withholding agent also may be responsible for withholding if a foreign person transfers a U. Online ez form S. Online ez form real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. Online ez form S. Online ez form real property interest to a shareholder, partner, or beneficiary that is a foreign person. Online ez form See U. Online ez form S. Online ez form Real Property Interest , later. Online ez form Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. Online ez form It does not apply to payments made to U. Online ez form S. Online ez form persons. Online ez form Usually, you determine the payee's status as a U. Online ez form S. Online ez form or foreign person based on the documentation that person provides. Online ez form See Documentation , later. Online ez form However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. Online ez form Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. Online ez form However, there are situations in which the payee is a person other than the one to whom you actually make a payment. Online ez form U. Online ez form S. Online ez form agent of foreign person. Online ez form   If you make a payment to a U. Online ez form S. Online ez form person and you have actual knowledge that the U. Online ez form S. Online ez form person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. Online ez form However, if the U. Online ez form S. Online ez form person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. Online ez form   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. Online ez form S. Online ez form person and not as a payment to a foreign person. Online ez form You may be required to report the payment on Form 1099 and, if applicable, backup withhold. Online ez form Disregarded entities. Online ez form   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. Online ez form The payee of a payment made to a disregarded entity is the owner of the entity. Online ez form   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. Online ez form   If the owner is a U. Online ez form S. Online ez form person, you do not apply NRA withholding. Online ez form However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. Online ez form You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. Online ez form Flow-Through Entities The payees of payments (other than income effectively connected with a U. Online ez form S. Online ez form trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. Online ez form This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Online ez form Income that is, or is deemed to be, effectively connected with the conduct of a U. Online ez form S. Online ez form trade or business of a flow-through entity is treated as paid to the entity. Online ez form All of the following are flow-through entities. Online ez form A foreign partnership (other than a withholding foreign partnership). Online ez form A foreign simple or foreign grantor trust (other than a withholding foreign trust). Online ez form A fiscally transparent entity receiving income for which treaty benefits are claimed. Online ez form See Fiscally transparent entity , later. Online ez form In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. Online ez form You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. Online ez form You must determine whether the owners or beneficiaries of a flow-through entity are U. Online ez form S. Online ez form or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. Online ez form You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. Online ez form If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. Online ez form See Documentation and Presumption Rules , later. Online ez form Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. Online ez form Foreign partnerships. Online ez form    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. Online ez form If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. Online ez form However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Online ez form If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. Online ez form Example 1. Online ez form A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. Online ez form S. Online ez form citizen. Online ez form You make a payment of U. Online ez form S. Online ez form source interest to the partnership. Online ez form It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. Online ez form S. Online ez form citizen. Online ez form The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. Online ez form You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. Online ez form Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. Online ez form Report the payment to the U. Online ez form S. Online ez form citizen on Form 1099-INT. Online ez form Example 2. Online ez form A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. Online ez form The second partnership has two partners, both nonresident alien individuals. Online ez form You make a payment of U. Online ez form S. Online ez form source interest to the first partnership. Online ez form It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. Online ez form In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. Online ez form The Forms W-8IMY from the partnerships have complete withholding statements associated with them. Online ez form Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. Online ez form Example 3. Online ez form You make a payment of U. Online ez form S. Online ez form source dividends to a withholding foreign partnership. Online ez form The partnership has two partners, both foreign corporations. Online ez form You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. Online ez form You must treat the partnership as the payee of the dividends. Online ez form Foreign simple and grantor trust. Online ez form   A trust is foreign unless it meets both of the following tests. Online ez form A court within the United States is able to exercise primary supervision over the administration of the trust. Online ez form One or more U. Online ez form S. Online ez form persons have the authority to control all substantial decisions of the trust. Online ez form   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. Online ez form A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. Online ez form   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. Online ez form The payees of a payment made to a foreign grantor trust are the owners of the trust. Online ez form However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Online ez form If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. Online ez form Example. Online ez form A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. Online ez form S. Online ez form citizen. Online ez form You make a payment of interest to the foreign trust. Online ez form It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. Online ez form S. Online ez form citizen. Online ez form The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. Online ez form You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. Online ez form Report the payment to the nonresident aliens on Forms 1042-S. Online ez form Report the payment to the U. Online ez form S. Online ez form citizen on Form 1099-INT. Online ez form Fiscally transparent entity. Online ez form   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. Online ez form The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. Online ez form ). Online ez form The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. Online ez form An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. Online ez form Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. Online ez form   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. Online ez form Example. Online ez form Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. Online ez form A has two interest holders, B and C. Online ez form B is a corporation organized under the laws of country Y. Online ez form C is a corporation organized under the laws of country Z. Online ez form Both countries Y and Z have an income tax treaty in force with the United States. Online ez form A receives royalty income from U. Online ez form S. Online ez form sources that is not effectively connected with the conduct of a trade or business in the United States. Online ez form For U. Online ez form S. Online ez form income tax purposes, A is treated as a partnership. Online ez form Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. Online ez form The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. Online ez form Accordingly, A is fiscally transparent in its jurisdiction, country X. Online ez form B and C are not fiscally transparent under the laws of their respective countries of incorporation. Online ez form Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. Online ez form Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. Online ez form S. Online ez form source royalty income for purposes of the U. Online ez form S. Online ez form -Y income tax treaty. Online ez form Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. Online ez form Therefore, A is not treated as fiscally transparent under the laws of country Z. Online ez form Accordingly, C is not treated as deriving its share of the U. Online ez form S. Online ez form source royalty income for purposes of the U. Online ez form S. Online ez form -Z income tax treaty. Online ez form Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. Online ez form This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Online ez form You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. Online ez form An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. Online ez form A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. Online ez form In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. Online ez form You must determine whether the customers or account holders of a foreign intermediary are U. Online ez form S. Online ez form or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. Online ez form You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. Online ez form If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. Online ez form See Documentation and Presumption Rules , later. Online ez form Nonqualified intermediary. Online ez form   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. Online ez form The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. Online ez form Example. Online ez form You make a payment of interest to a foreign bank that is a nonqualified intermediary. Online ez form The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. Online ez form S. Online ez form person for whom the bank is collecting the payments. Online ez form The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. Online ez form The account holders are the payees of the interest payment. Online ez form You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. Online ez form S. Online ez form person on Form 1099-INT. Online ez form Qualified intermediary. Online ez form   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. Online ez form S. Online ez form intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. Online ez form You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. Online ez form In this situation, the QI is required to withhold the tax. Online ez form You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. Online ez form   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. Online ez form If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. Online ez form S. Online ez form person. Online ez form Branches of financial institutions. Online ez form   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. Online ez form The countries with approved KYC rules are listed on IRS. Online ez form gov. Online ez form QI withholding agreement. Online ez form   Foreign financial institutions and foreign branches of U. Online ez form S. Online ez form financial institutions can enter into an agreement with the IRS to be a qualified intermediary. Online ez form   A QI is entitled to certain simplified withholding and reporting rules. Online ez form In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. Online ez form   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. Online ez form These forms, and the procedures required to obtain a QI withholding agreement are available at www. Online ez form irs. Online ez form gov/Businesses/Corporations/Qualified-Intermediaries-(QI). Online ez form Documentation. Online ez form   A QI is not required to forward documentation obtained from foreign account holders to the U. Online ez form S. Online ez form withholding agent from whom the QI receives a payment of U. Online ez form S. Online ez form source income. Online ez form The QI maintains such documentation at its location and provides the U. Online ez form S. Online ez form withholding agent with withholding rate pools. Online ez form A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. Online ez form   A QI is required to provide the U. Online ez form S. Online ez form withholding agent with information regarding U. Online ez form S. Online ez form persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. Online ez form   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. Online ez form This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. Online ez form Form 1042-S reporting. Online ez form   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. Online ez form Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). Online ez form Collective refund procedures. Online ez form   A QI may seek a refund on behalf of its direct account holders. Online ez form The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. Online ez form U. Online ez form S. Online ez form branches of foreign banks and foreign insurance companies. Online ez form   Special rules apply to a U. Online ez form S. Online ez form branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. Online ez form If you agree to treat the branch as a U. Online ez form S. Online ez form person, you may treat the branch as a U. Online ez form S. Online ez form payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. Online ez form S. Online ez form branch on which the agreement is evidenced. Online ez form If you treat the branch as a U. Online ez form S. Online ez form payee, you are not required to withhold. Online ez form Even though you agree to treat the branch as a U. Online ez form S. Online ez form person, you must report the payment on Form 1042-S. Online ez form   A financial institution organized in a U. Online ez form S. Online ez form possession is treated as a U. Online ez form S. Online ez form branch. Online ez form The special rules discussed in this section apply to a possessions financial institution. Online ez form   If you are paying a U. Online ez form S. Online ez form branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. Online ez form S. Online ez form person for amounts subject to NRA withholding. Online ez form Consequently, amounts not subject to NRA withholding that are paid to a U. Online ez form S. Online ez form branch are not subject to Form 1099 reporting or backup withholding. Online ez form   Alternatively, a U. Online ez form S. Online ez form branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. Online ez form In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. Online ez form See Nonqualified Intermediaries under  Documentation, later. Online ez form   If the U. Online ez form S. Online ez form branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. Online ez form Withholding foreign partnership and foreign trust. Online ez form   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. Online ez form A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. Online ez form   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. Online ez form A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. Online ez form You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. Online ez form WP and WT withholding agreements. Online ez form   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. Online ez form Also see the following items. Online ez form Revenue Procedure 2004-21. Online ez form Revenue Procedure 2005-77. Online ez form Employer identification number (EIN). Online ez form   A completed Form SS-4 must be submitted with the application for being a WP or WT. Online ez form The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. Online ez form Documentation. Online ez form   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. Online ez form The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. Online ez form The Form W-8IMY must contain the WP-EIN or WT-EIN. Online ez form Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. Online ez form A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. Online ez form S. Online ez form person. Online ez form It also includes a foreign branch of a U. Online ez form S. Online ez form financial institution if the foreign branch is a qualified intermediary. Online ez form In most cases, the U. Online ez form S. Online ez form branch of a foreign corporation or partnership is treated as a foreign person. Online ez form Nonresident alien. Online ez form   A nonresident alien is an individual who is not a U. Online ez form S. Online ez form citizen or a resident alien. Online ez form A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. Online ez form Married to U. Online ez form S. Online ez form citizen or resident alien. Online ez form   Nonresident alien individuals married to U. Online ez form S. Online ez form citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. Online ez form However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. Online ez form Wages paid to these individuals are subject to graduated withholding. Online ez form See Wages Paid to Employees—Graduated Withholding . Online ez form Resident alien. Online ez form   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. Online ez form Green card test. Online ez form An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. Online ez form This is known as the green card test because these aliens hold immigrant visas (also known as green cards). Online ez form Substantial presence test. Online ez form An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. Online ez form Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. Online ez form   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. Online ez form This exception is for a limited period of time. Online ez form   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. Online ez form Note. Online ez form   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. Online ez form For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). Online ez form Resident of a U. Online ez form S. Online ez form possession. Online ez form   A bona fide resident of Puerto Rico, the U. Online ez form S. Online ez form Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. Online ez form S. Online ez form citizen or a U. Online ez form S. Online ez form national is treated as a nonresident alien for the withholding rules explained here. Online ez form A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. Online ez form   For more information, see Publication 570, Tax Guide for Individuals With Income From U. Online ez form S. Online ez form Possessions. Online ez form Foreign corporations. Online ez form   A foreign corporation is one that does not fit the definition of a domestic corporation. Online ez form A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. Online ez form Guam or Northern Mariana Islands corporations. Online ez form   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). Online ez form Note. Online ez form   The provisions discussed below under U. Online ez form S. Online ez form Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. Online ez form U. Online ez form S. Online ez form Virgin Islands and American Samoa corporations. Online ez form   A corporation created or organized in, or under the laws of, the U. Online ez form S. Online ez form Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. Online ez form S. Online ez form Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. Online ez form S. Online ez form Virgin Islands, American Samoa, Guam, the CNMI, or the United States. Online ez form Foreign private foundations. Online ez form   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. Online ez form Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. Online ez form Other foreign organizations, associations, and charitable institutions. Online ez form   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. Online ez form In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. Online ez form   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. Online ez form   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. Online ez form U. Online ez form S. Online ez form branches of foreign persons. Online ez form   In most cases, a payment to a U. Online ez form S. Online ez form branch of a foreign person is a payment made to the foreign person. Online ez form However, you may treat payments to U. Online ez form S. Online ez form branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. Online ez form S. Online ez form regulatory supervision as payments made to a U. Online ez form S. Online ez form person, if you and the U. Online ez form S. Online ez form branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. Online ez form For this purpose, a financial institution organized under the laws of a U. Online ez form S. Online ez form possession is treated as a U. Online ez form S. Online ez form branch. Online ez form Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. Online ez form The payee is a U. Online ez form S. Online ez form person. Online ez form The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. Online ez form In most cases, you must get the documentation before you make the payment. Online ez form The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. Online ez form See Standards of Knowledge , later. Online ez form If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. Online ez form For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. Online ez form The specific types of documentation are discussed in this section. Online ez form However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. Online ez form As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. Online ez form Section 1446 withholding. Online ez form   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. Online ez form In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. Online ez form This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. Online ez form Joint owners. Online ez form    If you make a payment to joint owners, you need to get documentation from each owner. Online ez form Form W-9. Online ez form   In most cases, you can treat the payee as a U. Online ez form S. Online ez form person if the payee gives you a Form W-9. Online ez form The Form W-9 can be used only by a U. Online ez form S. Online ez form person and must contain the payee's taxpayer identification number (TIN). Online ez form If there is more than one owner, you may treat the total amount as paid to a U. Online ez form S. Online ez form person if any one of the owners gives you a Form W-9. Online ez form See U. Online ez form S. Online ez form Taxpayer Identification Numbers , later. Online ez form U. Online ez form S. Online ez form persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. Online ez form Form W-8. Online ez form   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. Online ez form Until further notice, you can rely upon Forms W-8 that contain a P. Online ez form O. Online ez form box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. Online ez form S. Online ez form person and that a street address is available. Online ez form You may rely on Forms W-8 for which there is a U. Online ez form S. Online ez form mailing address provided you received the form prior to December 31, 2001. Online ez form   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. Online ez form You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. Online ez form S. Online ez form possession. Online ez form Other documentation. Online ez form   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. Online ez form The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. Online ez form These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. Online ez form Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. Online ez form Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Online ez form   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. Online ez form   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. Online ez form For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. Online ez form Claiming treaty benefits. Online ez form   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. Online ez form S. Online ez form TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. Online ez form   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. Online ez form   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. Online ez form See Fiscally transparent entity discussed earlier under Flow-Through Entities. Online ez form   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. Online ez form For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. Online ez form   The exemptions from, or reduced rates of, U. Online ez form S. Online ez form tax vary under each treaty. Online ez form You must check the provisions of the tax treaty that apply. Online ez form Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. Online ez form   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. Online ez form You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. Online ez form Exceptions to TIN requirement. Online ez form   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. Online ez form Income from marketable securities (discussed next). Online ez form Unexpected payments to an individual (discussed under U. Online ez form S. Online ez form Taxpayer Identification Numbers ). Online ez form Marketable securities. Online ez form   A Form W-8BEN provided to claim treaty benefits does not need a U. Online ez form S. Online ez form TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. Online ez form For this purpose, income from a marketable security consists of the following items. Online ez form Dividends and interest from stocks and debt obligations that are actively traded. Online ez form Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). Online ez form Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. Online ez form Income related to loans of any of the above securities. Online ez form Offshore accounts. Online ez form   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. Online ez form   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. Online ez form However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. Online ez form An offshore account is an account maintained at an office or branch of a U. Online ez form S. Online ez form or foreign bank or other financial institution at any location outside the United States. Online ez form   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. Online ez form This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. Online ez form In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. Online ez form Documentary evidence. Online ez form   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. Online ez form To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. Online ez form Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. Online ez form Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. Online ez form In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. Online ez form Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. Online ez form   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. Online ez form (See Effectively Connected Income , later. Online ez form )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. Online ez form   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. Online ez form S. Online ez form trade or business is subject to withholding under section 1446. Online ez form If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. Online ez form    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. Online ez form Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. Online ez form   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. Online ez form S. Online ez form possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. Online ez form   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. Online ez form   See Foreign Governments and Certain Other Foreign Organizations , later. Online ez form Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. Online ez form The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. Online ez form The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. Online ez form Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. Online ez form S. Online ez form Branches for United States Tax Withholding. Online ez form   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. Online ez form S. Online ez form branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. Online ez form S. Online ez form branch of a foreign bank or insurance company and either is agreeing to be treated as a U. Online ez form S. Online ez form person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. Online ez form For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. Online ez form 1446-5. Online ez form Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. Online ez form A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. Online ez form The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. Online ez form The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. Online ez form Responsibilities. Online ez form   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. Online ez form However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. Online ez form Instead, it provides you with a withholding statement that contains withholding rate pool information. Online ez form A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. Online ez form A qualified intermediary is required to provide you with information regarding U. Online ez form S. Online ez form persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. Online ez form S. Online ez form person unless it has assumed Form 1099 reporting and backup withholding responsibility. Online ez form For the alternative procedure for providing rate pool information for U. Online ez form S. Online ez form non-exempt persons, see the Form W-8IMY instructions. Online ez form   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. Online ez form   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. Online ez form Primary responsibility not assumed. Online ez form   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. Online ez form Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. Online ez form S. Online ez form person subject to Form 1099 reporting and/or backup withholding. Online ez form The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Online ez form Primary NRA withholding responsibility assumed. Online ez form   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. Online ez form S. Online ez form person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. Online ez form The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Online ez form Primary NRA and Form 1099 responsibility assumed. Online ez form   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. Online ez form It is not necessary to associate the payment with withholding rate pools. Online ez form Example. Online ez form You make a payment of dividends to a QI. Online ez form It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. Online ez form S. Online ez form individual who provides it with a Form W-9. Online ez form Each customer is entitled to 20% of the dividend payment. Online ez form The QI does not assume any primary withholding responsibility. Online ez form The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. Online ez form S. Online ez form individual. Online ez form You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. Online ez form The part of the payment allocable to the U. Online ez form S. Online ez form individual (20%) is reportable on Form 1099-DIV. Online ez form Smaller partnerships and trusts. Online ez form   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. Online ez form It is a foreign partnership or foreign simple or grantor trust. Online ez form It is a direct account holder of the QI. Online ez form It does not have any partner, beneficiary, or owner that is a U. Online ez form S. Online ez form person or a pass- through partner, beneficiary, or owner. Online ez form   For information on these rules, see section 4A. Online ez form 01 of the QI agreement. Online ez form This is found in Appendix 3 of Revenue Procedure 2003-64. Online ez form Also see Revenue Procedure 2004-21. Online ez form Related partnerships and trusts. Online ez form    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. Online ez form It is a foreign partnership or foreign simple or grantor trust. Online ez form It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. Online ez form For information on these rules, see section 4A. Online ez form 02 of the QI agreement. Online ez form This is found in Appendix 3 of Revenue Procedure 2003-64. Online ez form Also see Revenue Procedure 2005-77. Online ez form Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. Online ez form S. Online ez form branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. Online ez form S. Online ez form branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. Online ez form The NQI, flow-through entity, or U. Online ez form S. Online ez form branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. Online ez form A withholding statement must be updated to keep the information accurate prior to each payment. Online ez form Withholding statement. Online ez form   In most cases, a withholding statement must contain the following information. Online ez form The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. Online ez form The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. Online ez form The status of the person for whom the documentation has been provided, such as whether the person is a U. Online ez form S. Online ez form exempt recipient (U. Online ez form S. Online ez form person exempt from Form 1099 reporting), U. Online ez form S. Online ez form non-exempt recipient (U. Online ez form S. Online ez form person subject to Form 1099 reporting), or a foreign person. Online ez form For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. Online ez form S. Online ez form branch. Online ez form The type of recipient the person is, based on the recipient codes used on Form 1042-S. Online ez form Information allocating each payment, by income type, to each payee (including U. Online ez form S. Online ez form exempt and U. Online ez form S. Online ez form non-exempt recipients) for whom documentation has been provided. Online ez form The rate of withholding that applies to each foreign person to whom a payment is allocated. Online ez form A foreign payee's country of residence. Online ez form If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. Online ez form ). Online ez form In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. Online ez form The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. Online ez form S. Online ez form branch from which the payee will directly receive a payment. Online ez form Any other information a withholding agent requests to fulfill its reporting and withholding obligations. Online ez form Alternative procedure. Online ez form   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. Online ez form S. Online ez form exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. Online ez form To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. Online ez form You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. Online ez form    This alternative procedure cannot be used for payments to U. Online ez form S. Online ez form non-exempt recipients. Online ez form Therefore, an NQI must always provide you with allocation information for all U. Online ez form S. Online ez form non-exempt recipients prior to a payment being made. Online ez form Pooled withholding information. Online ez form   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. Online ez form A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. Online ez form For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). Online ez form The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. Online ez form Failure to provide allocation information. Online ez form   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. Online ez form You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . Online ez form An NQI is deemed to have f
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Trusts

It is a common misconception that trusts, or trust funds as they are commonly called, are only useful for wealthy people. When set up properly, trusts can be appropriate for people with minor children or those who want to avoid having their estate go through probate upon death. These are basic facts about trusts – but, be sure to consult a licensed attorney experienced with estate planning and trust matters before making any final decisions about if one is right for you.

How Trusts Work

Creating a trust (or trust fund) establishes a legal entity that holds property or assets for the person who created it. The person who creates the trust can be called a grantor, donor, or settlor. When the grantor creates the trust he or she appoints a person or entity (like the trust department of a bank) to manage the trust. This person or entity is called a trustee. The grantor also chooses someone who will ultimately benefit from the trust, this person is the beneficiary. In some situations the grantor, trustee, and beneficiary are all the same person. In this case, the grantor should also appoint a successor trustee and beneficiary in case he or she dies or becomes incapacitated. A trust is a helpful estate planning tool because after death a trust doesn’t go through the probate process like a will does.

Reasons To Set Up A Trust

Some common reasons for setting up a trust include:

  • Providing for minor children or family members who are inexperienced or unable to handle financial matters
  • Providing for management of personal assets should one become unable to handle them oneself
  • Avoiding probate and immediately transferring assets to beneficiaries upon death
  • Reducing estate taxes and providing liquid assets to help pay for them
  • The terms of a will are public while the terms of a trust are not so privacy makes a trust an attractive option

Types of Trusts

Trusts can be living (inter vivos) or after-death (testamentary). A living trust is one that a grantor sets up while still alive and an after-death trust is usually established by a will after one’s death. Living trusts can be irrevocable (can’t be changed) or revocable (can be changed) although revocable trusts don’t receive the same tax shelter benefits as irrevocable ones do. The most popular type is the revocable living trust. If there’s a specific purpose in mind for the trust, dozens of different options exist. Some examples include charitable trusts, bypass trusts, spendthrift trusts, and life insurance trusts. New laws have even established a trust that will care for a pet after one’s death.

Setting Up A Trust

Once you’ve decided to set up a trust it is important to remember that a trust, by design, can be very flexible and a grantor has the right – and should take advantage of this right - within the law, to tailor it to meet the anticipated the needs of the beneficiary. Working with an experienced attorney that specializes in estate and trust issues and knows the specific state regulations can help get the maximum benefit from the trust.
Some things to consider when setting up the trust include:

  • The grantor has the right to specify exactly how the money in the trust is invested. The grantor and the trustee might have very different ideas about investment strategies, so make sure this gets clearly defined.
  • The grantor has the right to specify exactly how the assets should be divvied up down to details like including an annual cost of living adjustment for the beneficiary or paying for travel expenses for others to visit the beneficiary in the case of illness.
  • Always be sure to include a “trustee removal clause” – trusts that don’t have this clause take away the beneficiary’s right to fire the trustee if unsatisfied with the service being provided. Remember that the grantor can always add a provision that requires the beneficiary to select a new trustee from legitimate bank trust departments. Contact your state Department of Financial Institutions to get a list of licensed trust departments.
  • If the grantor wants to ensure that upon death any assets that remain outside of the trust are transferred to it, he or she should consider having a “pour-over” will to accomplish this.

Upon establishment of the trust the grantor must complete the process of setting up the trust by transferring his or her assets into the trust. Failure to do this properly makes the trust null and void. This means that upon the grantor’s death the state will decide who gets the assets and cares for minor children.

Protect Yourself From Trust Scams and Fraud

If someone approaches you to set up a trust be very cautious. Before signing any papers to create a living trust, will or other kind of trust make sure to explore all options and shop around for this service just as you would for any other. Also:

  • Avoid high-pressure sales tactics and high speed sales pitches.
  • Avoid salespeople who give the impression that AARP is backing or selling the product – AARP does not endorse living trust products.
  • Do your homework and get information about local probate laws from the Clerk or Register of Wills.
  • If someone tries to sell a living trust to you ask if they are an attorney. Some states restrict sales of living trusts by licensed attorneys.
  • If you buy a trust in your home or another location that is not the seller’s permanent place of business remember you are entitled to take advantage of the Cooling Off Rule and cancel the transaction within 3 business days.

The Online Ez Form

Online ez form Publication 721 - Main Content Table of Contents Part I General InformationRefund of Contributions Tax Withholding and Estimated Tax Filing Requirements Part II Rules for RetireesAnnuity starting date. Online ez form Gross monthly rate. Online ez form Your cost. Online ez form Choosing a survivor annuity after retirement. Online ez form Canceling a survivor annuity after retirement. Online ez form Annuity starting date after 1986. Online ez form Annuity starting date before 1987. Online ez form Simplified Method General Rule Three-Year Rule Alternative Annuity Option Federal Gift Tax Retirement During the Past Year Reemployment After Retirement Nonresident Aliens Thrift Savings Plan Rollover Rules Distributions Used To Pay Insurance Premiums for Public Safety Officers How To Report Benefits Part III Rules for Disability Retirement and Credit for the Elderly or the DisabledDisability Annuity Other Benefits Credit for the Elderly or the Disabled Part IV Rules for Survivors of Federal EmployeesFERS Death Benefit CSRS or FERS Survivor Annuity Lump-Sum CSRS or FERS Payment Thrift Savings Plan Federal Estate Tax Part V Rules for Survivors of Federal RetireesCSRS or FERS Survivor Annuity Lump-Sum CSRS or FERS Payment Voluntary Contributions Thrift Savings Plan Federal Estate Tax Income Tax Deduction for Estate Tax Paid How To Get Tax HelpLow Income Taxpayer Clinics Part I General Information This part of the publication contains information that can apply to most recipients of civil service retirement benefits. Online ez form Refund of Contributions If you leave federal government service or transfer to a job not under the CSRS or FERS and you are not eligible for an immediate annuity, you can choose to receive a refund of the money in your CSRS or FERS retirement account. Online ez form The refund will include both regular and voluntary contributions you made to the fund, plus any interest payable. Online ez form If the refund includes only your contributions, none of the refund is taxable. Online ez form If it includes any interest, the interest is taxable unless you roll it over directly into another qualified plan or a traditional individual retirement arrangement (IRA). Online ez form If you do not have the Office of Personnel Management (OPM) transfer the interest to an IRA or other plan in a direct rollover, tax will be withheld at a 20% rate. Online ez form See Rollover Rules in Part II for information on how to make a rollover. Online ez form Interest is not paid on contributions to the CSRS for service after 1956 unless your service was for more than 1 year but not more than 5 years. Online ez form Therefore, many employees who withdraw their contributions under the CSRS do not get interest and do not owe any tax on their refund. Online ez form If you do not roll over interest included in your refund, it may qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. Online ez form If you separate from service before the calendar year in which you reach age 55, it may be subject to an additional 10% tax on early distributions. Online ez form For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. Online ez form A lump-sum distribution is eligible for capital gain treatment or the 10-year tax option only if the plan participant was born before January 2, 1936. Online ez form Tax Withholding and Estimated Tax The CSRS or FERS annuity you receive is subject to federal income tax withholding, unless you choose not to have tax withheld. Online ez form OPM will tell you how to make the choice. Online ez form The choice for no withholding remains in effect until you change it. Online ez form These withholding rules also apply to a disability annuity, whether received before or after minimum retirement age. Online ez form If you choose not to have tax withheld, or if you do not have enough tax withheld, you may have to make estimated tax payments. Online ez form You may owe a penalty if the total of your withheld tax and estimated tax does not cover most of the tax shown on your return. Online ez form Generally, you will owe the penalty for 2014 if the additional tax you must pay with your return is $1,000 or more and more than 10% of the tax to be shown on your 2014 return. Online ez form For more information, including exceptions to the penalty, see chapter 4 of Publication 505, Tax Withholding and Estimated Tax. Online ez form Form CSA 1099R. Online ez form   Form CSA 1099R is mailed to you by OPM each year. Online ez form It will show any tax you had withheld. Online ez form File a copy of Form CSA 1099R with your tax return if any federal income tax was withheld. Online ez form    You also can view and download your Form CSA 1099R by visiting the OPM website at  www. Online ez form servicesonline. Online ez form opm. Online ez form gov. Online ez form To log in, you will need your retirement CSA claim number and your personal identification number. Online ez form Choosing no withholding on payments outside the United States. Online ez form   The choice for no withholding generally cannot be made for annuity payments to be delivered outside the United States and its possessions. Online ez form   To choose no withholding if you are a U. Online ez form S. Online ez form citizen or resident alien, you must provide OPM with your home address in the United States or its possessions. Online ez form Otherwise, OPM has to withhold tax. Online ez form For example, OPM must withhold if you provide a U. Online ez form S. Online ez form address for a nominee, trustee, or agent (such as a bank) to whom the benefits are to be delivered, but you do not provide your own U. Online ez form S. Online ez form home address. Online ez form   If you do not provide a home address in the United States or its possessions, you can choose not to have tax withheld only if you certify to OPM that you are not a U. Online ez form S. Online ez form citizen, a U. Online ez form S. Online ez form resident alien, or someone who left the United States to avoid tax. Online ez form But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. Online ez form For details, see Publication 519, U. Online ez form S. Online ez form Tax Guide for Aliens. Online ez form Withholding certificate. Online ez form   If you give OPM a Form W-4P-A, Election of Federal Income Tax Withholding, you can choose not to have tax withheld or you can choose to have tax withheld. Online ez form The amount of tax withheld depends on your marital status, the number of withholding allowances, and any additional amount you designate to be withheld. Online ez form If you do not make either of these choices, OPM must withhold as if you were married with three withholding allowances. Online ez form To change the amount of tax withholding or to stop withholding, call OPM's Retirement Information Office at 1-888-767-6738 (customers within the local Washington, D. Online ez form C. Online ez form calling area must call 202-606-0500). Online ez form No special form is needed. Online ez form You will need your retirement CSA or CSF claim number, your social security number, and your personal identification number (PIN) when you call. Online ez form If you have TTY/TDD equipment, call 1-855–887–4957. Online ez form If you need a PIN, call OPM's Retirement Information Office. Online ez form You also can change the amount of withholding or stop withholding online by visiting the OPM website at www. Online ez form servicesonline. Online ez form opm. Online ez form gov. Online ez form You will need your retirement CSA or CSF claim number and your PIN. Online ez form Withholding from certain lump-sum payments. Online ez form   If you leave the federal government before becoming eligible to retire and you apply for a refund of your CSRS or FERS contributions, or you die without leaving a survivor eligible for an annuity, you or your beneficiary will receive a distribution of your contributions to the retirement plan plus any interest payable. Online ez form Tax will be withheld at a 20% rate on the interest distributed. Online ez form However, tax will not be withheld if you have OPM transfer (roll over) the interest directly to your traditional IRA or other qualified plan. Online ez form If you have OPM transfer (roll over) the interest directly to a Roth IRA, the entire amount will be taxed in the current year. Online ez form Because no income tax will be withheld at the time of the transfer, you may want to increase your withholding or pay estimated taxes. Online ez form See Rollover Rules in Part II. Online ez form If you receive only your contributions, no tax will be withheld. Online ez form Withholding from Thrift Savings Plan payments. Online ez form   Generally, a distribution that you receive from the TSP is subject to federal income tax withholding. Online ez form The amount withheld is: 20% if the distribution is an eligible rollover distribution, 10% if it is a nonperiodic distribution other than an eligible rollover distribution, or An amount determined as if you were married with three withholding allowances, unless you submit a withholding certificate (Form W-4P), if it is a periodic distribution. Online ez form  However, you usually can choose not to have tax withheld from TSP payments other than eligible rollover distributions. Online ez form By January 31 after the end of the year in which you receive a distribution, the TSP will issue Form 1099-R showing the total distributions you received in the prior year and the amount of tax withheld. Online ez form   For a detailed discussion of withholding on distributions from the TSP, see Important Tax Information About Payments From Your TSP Account, available from your agency personnel office or from the TSP. Online ez form The above document is also available in the “Forms & Publications” section of the TSP website at www. Online ez form tsp. Online ez form gov. Online ez form Estimated tax. Online ez form   Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax for 2014 (after subtracting your withholding and credits) and you expect your withholding and your credits to be less than the smaller of: 90% of the tax to be shown on your income tax return for 2014, or 100% of the tax shown on your 2013 income tax return (110% of that amount if the adjusted gross income shown on the return was more than $150,000 ($75,000 if your filing status for 2014 will be married filing separately)). Online ez form The return must cover all 12 months. Online ez form   You do not have to pay estimated tax for 2014 if you were a U. Online ez form S. Online ez form citizen or resident alien for all of 2013 and you had no tax liability for the full 12-month 2013 tax year. Online ez form   Publication 505 contains information that you can use to help you figure your estimated tax payments. Online ez form Filing Requirements If your gross income, including the taxable part of your annuity, is less than a certain amount, you generally do not have to file a federal income tax return for that year. Online ez form The gross income filing requirements for the tax year are in the instructions to Form 1040, 1040A, or 1040EZ. Online ez form Children. Online ez form   If you are the surviving spouse of a federal employee or retiree and your monthly annuity check includes a survivor annuity for one or more children, each child's annuity counts as his or her own income (not yours) for federal income tax purposes. Online ez form   If your child can be claimed as a dependent, treat the taxable part of his or her annuity as unearned income when applying the filing requirements for dependents. Online ez form Form CSF 1099R. Online ez form   Form CSF 1099R will be mailed to you by January 31 after the end of each tax year. Online ez form It will show the total amount of the annuity you received in the past year. Online ez form It also should show, separately, the survivor annuity for a child or children. Online ez form Only the part that is each individual's survivor annuity should be shown on that individual's Form 1040 or 1040A. Online ez form   If your Form CSF 1099R does not show separately the amount paid to you for a child or children, attach a statement to your return, along with a copy of Form CSF 1099R, explaining why the amount shown on the tax return differs from the amount shown on Form CSF 1099R. Online ez form    You also can view and download your Form CSF 1099R by visiting the OPM website at  www. Online ez form servicesonline. Online ez form opm. Online ez form gov. Online ez form To log in you will need your retirement CSF claim number and personal identification number. Online ez form    You may request a Summary of Payments, showing the amounts paid to you for your child(ren), from OPM by calling OPM's Retirement Information Office at 1-888-767-6738 (customers within the local Washington, D. Online ez form C. Online ez form calling area must call 202-606-0500). Online ez form You will need your CSF claim number and your social security number when you call. Online ez form Taxable part of annuity. Online ez form   To find the taxable part of a retiree's annuity when applying the filing requirements, see the discussion in Part II, Rules for Retirees , or Part III, Rules for Disability Retirement and Credit for the Elderly or the Disabled , whichever applies. Online ez form To find the taxable part of each survivor annuity when applying the filing requirements, see the discussion in Part IV, Rules for Survivors of Federal Employees , or Part V, Rules for Survivors of Federal Retirees , whichever applies. Online ez form Part II Rules for Retirees This part of the publication is for retirees who retired on nondisability retirement. Online ez form If you retired on disability before you reached your minimum retirement age, see Part III, Rules for Disability Retirement and Credit for the Elderly or the Disabled. Online ez form However, on the day after you reach your minimum retirement age, use the rules in this section to report your disability retirement and begin recovering your cost. Online ez form Annuity statement. Online ez form   The statement you received from OPM when your CSRS or FERS annuity was approved shows the commencing date (the annuity starting date), the gross monthly rate of your annuity benefit, and your total contributions to the retirement plan (your cost). Online ez form You will use this information to figure the tax-free recovery of your cost. Online ez form Annuity starting date. Online ez form   If you retire from federal government service on a regular annuity, your annuity starting date is the commencing date on your annuity statement from OPM. Online ez form If something delays payment of your annuity, such as a late application for retirement, it does not affect the date your annuity begins to accrue or your annuity starting date. Online ez form Gross monthly rate. Online ez form   This is the amount you were to get after any adjustment for electing a survivor's annuity or for electing the lump-sum payment under the alternative annuity option (if either applied) but before any deduction for income tax withholding, insurance premiums, etc. Online ez form Your cost. Online ez form   Your monthly annuity payment contains an amount on which you have previously paid income tax. Online ez form This amount represents part of your contributions to the retirement plan. Online ez form Even though you did not receive the money that was contributed to the plan, it was included in your gross income for federal income tax purposes in the years it was taken out of your pay. Online ez form   The cost of your annuity is the total of your contributions to the retirement plan, as shown on your annuity statement from OPM. Online ez form If you elected the alternative annuity option, it includes any deemed deposits and any deemed redeposits that were added to your lump-sum credit. Online ez form (See Lump-sum credit under Alternative Annuity Option, later. Online ez form )   If you repaid contributions that you had withdrawn from the retirement plan earlier, or if you paid into the plan to receive full credit for service not subject to retirement deductions, the entire repayment, including any interest, is a part of your cost. Online ez form You cannot claim an interest deduction for any interest payments. Online ez form You cannot treat these payments as voluntary contributions; they are considered regular employee contributions. Online ez form Recovering your cost tax free. Online ez form   How you figure the tax-free recovery of the cost of your CSRS or FERS annuity depends on your annuity starting date. Online ez form If your annuity starting date is before July 2, 1986, either the Three-Year Rule or the General Rule (both discussed later) applies to your annuity. Online ez form If your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the General Rule or the Simplified Method (discussed later). Online ez form If your annuity starting date is after November 18, 1996, you must use the Simplified Method. Online ez form   Under both the General Rule and the Simplified Method, each of your monthly annuity payments is made up of two parts: the tax-free part that is a return of your cost, and the taxable part that is the amount of each payment that is more than the part that represents your cost (unless such payment is used for purposes discussed under Distributions Used To Pay Insurance Premiums for Public Safety Officers , later). Online ez form The tax-free part is a fixed dollar amount. Online ez form It remains the same, even if your annuity is increased. Online ez form Generally, this rule applies as long as you receive your annuity. Online ez form However, see Exclusion limit , later. Online ez form Choosing a survivor annuity after retirement. Online ez form    If you retired without a survivor annuity and report your annuity under the Simplified Method, do not change your tax-free monthly amount even if you later choose a survivor annuity. Online ez form   If you retired without a survivor annuity and report your annuity under the General Rule, you must figure the tax-free part of your annuity using a new exclusion percentage if you later choose a survivor annuity and take reduced annuity payments. Online ez form To figure the new exclusion percentage, reduce your cost by the amount you previously recovered tax free. Online ez form Figure the expected return as of the date the reduced annuity begins. Online ez form For details on the General Rule, see Publication 939. Online ez form Canceling a survivor annuity after retirement. Online ez form   If you retired with a survivor annuity payable to your spouse upon your death and you notify OPM that your marriage has ended, your annuity might be increased to remove the reduction for a survivor benefit. Online ez form The increased annuity does not change the cost recovery you figured at the annuity starting date. Online ez form The tax-free part of each annuity payment remains the same. Online ez form    For more information about choosing or canceling a survivor annuity after retirement, contact OPM's Retirement Information Office at 1-888-767-6738 (customers within the local Washington, D. Online ez form C. Online ez form calling area must call 202-606-0500). Online ez form Exclusion limit. Online ez form   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. Online ez form Annuity starting date after 1986. Online ez form   If your annuity starting date is after 1986, the total amount of annuity income that you (or the survivor annuitant) can exclude over the years as a return of your cost cannot exceed your total cost. Online ez form Annuity payments you or your survivors receive after the total cost in the plan has been recovered are generally fully taxable. Online ez form Example. Online ez form Your annuity starting date is after 1986 and you exclude $100 a month under the Simplified Method. Online ez form If your cost is $12,000, the exclusion ends after 10 years (120 months). Online ez form Thereafter, your entire annuity is generally fully taxable. Online ez form Annuity starting date before 1987. Online ez form   If your annuity starting date is before 1987, you can continue to take your monthly exclusion figured under the General Rule or Simplified Method for as long as you receive your annuity. Online ez form If you chose a joint and survivor annuity, your survivor can continue to take that same exclusion. Online ez form The total exclusion may be more than your cost. Online ez form Deduction of unrecovered cost. Online ez form   If your annuity starting date is after July 1, 1986, and the cost of your annuity has not been fully recovered at your (or the survivor annuitant's) death, a deduction is allowed for the unrecovered cost. Online ez form The deduction is claimed on your (or your survivor's) final tax return as a miscellaneous itemized deduction (not subject to the 2%-of-adjusted-gross-income limit). Online ez form If your annuity starting date is before July 2, 1986, no tax benefit is allowed for any unrecovered cost at death. Online ez form Simplified Method If your annuity starting date is after November 18, 1996, you must use the Simplified Method to figure the tax-free part of your CSRS or FERS annuity. Online ez form (OPM has figured the taxable amount of your annuity shown on your Form CSA 1099R using the Simplified Method. Online ez form ) You could have chosen to use either the Simplified Method or the General Rule if your annuity starting date is after July 1, 1986, but before November 19, 1996. Online ez form The Simplified Method does not apply if your annuity starting date is before July 2, 1986. Online ez form Under the Simplified Method, you figure the tax-free part of each full monthly payment by dividing your cost by a number of months based on your age. Online ez form This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Online ez form If your annuity starting date is after 1997 and your annuity includes a survivor benefit for your spouse, this number is based on your combined ages. Online ez form Worksheet A. Online ez form   Use Worksheet A. Online ez form Simplified Method (near the end of this publication), to figure your taxable annuity. Online ez form Be sure to keep the completed worksheet. Online ez form It will help you figure your taxable amounts for later years. Online ez form Instead of Worksheet A, you generally can use the Simplified Method Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR to figure your taxable annuity. Online ez form However, you must use Worksheet A and Worksheet B in this publication if you chose the alternative annuity option, discussed later. Online ez form Line 2. Online ez form   See Your cost , earlier, for an explanation of your cost in the plan. Online ez form If your annuity starting date is after November 18, 1996, and you chose the alternative annuity option (explained later), you must reduce your cost by the tax-free part of the lump-sum payment you received. Online ez form Line 3. Online ez form   The number you enter on line 3 is the appropriate number from Table 1 or 2 representing approximate life expectancies in months. Online ez form If your annuity starting date is after 1997, use: Table 1 for an annuity without a survivor benefit, or Table 2 for an annuity with a survivor benefit. Online ez form If your annuity starting date is before 1998, use Table 1. Online ez form Line 6. Online ez form   If you received contributions tax free before 2013, the amount previously recovered tax free that you must enter on line 6 is the total amount from line 10 of last year's worksheet. Online ez form If your annuity starting date is before November 19, 1996, and you chose the alternative annuity option, this amount includes the tax-free part of the lump-sum payment you received. Online ez form Example. Online ez form Bill Smith retired from the Federal Government on March 31, 2013, under an annuity that will provide a survivor benefit for his wife, Kathy. Online ez form His annuity starting date is April 1, 2013, the annuity is paid in arrears, and he received his first monthly annuity payment on May 1, 2013. Online ez form He must use the Simplified Method to figure the tax-free part of his annuity benefits. Online ez form Bill's monthly annuity benefit is $1,000. Online ez form He had contributed $31,000 to his retirement plan and had received no distributions before his annuity starting date. Online ez form At his annuity starting date, he was 65 and Kathy was 57. Online ez form Bill's completed Worksheet A is shown later. Online ez form To complete line 3, he used Table 2 at the bottom of the worksheet and found that 310 is the number in the second column opposite the age range that includes 122 (his and Kathy's combined ages). Online ez form Bill keeps a copy of the completed worksheet for his records. Online ez form It will help him (and Kathy, if she survives him) figure the taxable amount of the annuity in later years. Online ez form Bill's tax-free monthly amount is $100. Online ez form (See line 4 of the worksheet. Online ez form ) If he lives to collect more than 310 monthly payments, he will generally have to include in his gross income the full amount of any annuity payments received after 310 payments have been made. Online ez form If Bill does not live to collect 310 monthly payments and his wife begins to receive monthly payments, she also will exclude $100 from each monthly payment until 310 payments (Bill's and hers) have been collected. Online ez form If she dies before 310 payments have been made, a miscellaneous itemized deduction (not subject to the 2%-of-adjusted- gross-income limit) will be allowed for the unrecovered cost on her final income tax return. Online ez form General Rule If your annuity starting date is after November 18, 1996, you cannot use the General Rule to figure the tax-free part of your CSRS or FERS annuity. Online ez form If your annuity starting date is after July 1, 1986, but before November 19, 1996, you could have chosen to use either the General Rule or the Simplified Method. Online ez form If your annuity starting date is before July 2, 1986, you could have chosen to use the General Rule only if you could not use the Three-Year Rule. Online ez form Under the General Rule, you figure the tax-free part of each full monthly payment by multiplying the initial gross monthly rate of your annuity by an exclusion percentage. Online ez form Figuring this percentage is complex and requires the use of actuarial tables. Online ez form For these tables and other information about using the General Rule, see Publication 939. Online ez form Three-Year Rule If your annuity starting date was before July 2, 1986, you probably had to report your annuity using the Three-Year Rule. Online ez form Under this rule, you excluded all the annuity payments from income until you fully recovered your cost. Online ez form After your cost was recovered, all payments became fully taxable. Online ez form You cannot use another rule to again exclude amounts from income. Online ez form The Three-Year Rule was repealed for retirees whose annuity starting date is after July 1, 1986. Online ez form Worksheet A. Online ez form Simplified Method for Bill Smith See the instructions in Part II of this publication under Simplified Method. Online ez form 1. Online ez form Enter the total pension or annuity payments received this year. Online ez form Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Online ez form $ 8,000 2. Online ez form Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. Online ez form See Your cost in Part II, Rules for Retirees, earlier 2. Online ez form 31,000 Note: If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Online ez form Otherwise, go to line 3. Online ez form   3. Online ez form Enter the appropriate number from Table 1 below. Online ez form But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below. Online ez form 3. Online ez form 310 4. Online ez form Divide line 2 by the number on line 3 4. Online ez form 100 5. Online ez form Multiply line 4 by the number of months for which this year's payments were made. Online ez form If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Online ez form Otherwise, go to line 6 5. Online ez form 800 6. Online ez form Enter any amounts previously recovered tax free in years after 1986. Online ez form This is the amount shown on line 10 of your worksheet for last year 6. Online ez form 0 7. Online ez form Subtract line 6 from line 2 7. Online ez form 31,000 8. Online ez form Enter the smaller of line 5 or line 7 8. Online ez form 800 9. Online ez form Taxable amount for year. Online ez form Subtract line 8 from line 1. Online ez form Enter the result, but not less than zero. Online ez form Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. Online ez form If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. Online ez form If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. Online ez form If you are a retired public safety officer, see Distributions Used To Pay Insurance Premiums for Public Safety Officers in Part II before entering an amount on your tax return or Worksheet C, line 1 9. Online ez form $7,200 10. Online ez form Was your annuity starting date before 1987?   Yes. Online ez form Do not complete the rest of this worksheet. Online ez form    No. Online ez form Add lines 6 and 8. Online ez form This is the amount you have recovered tax free through 2013. Online ez form You will need this number if you need to fill out this worksheet next year 10. Online ez form 800 11. Online ez form Balance of cost to be recovered. Online ez form Subtract line 10 from line 2. Online ez form If zero, you will not have to complete this worksheet next year. Online ez form The payments you receive next year will generally be fully taxable 11. Online ez form $30,200 Table 1 for Line 3 Above    IF your age on your  annuity starting date was   AND your annuity starting date was—     before November 19, 1996,  THEN enter on line 3 after November 18, 1996,  THEN enter on line 3   55 or under 300 360   56–60 260 310   61–65 240 260   66–70 170 210   71 or over 120 160  Table 2 for Line 3 Above    IF the annuitants' combined ages on your annuity starting date were   THEN enter on line 3         110 or under   410         111–120   360         121–130   310         131–140   260         141 or over   210       * A death benefit exclusion of up to $5,000 applied to certain benefits received by survivors of employees who died before August 21, 1996. Online ez form Alternative Annuity Option If you are eligible, you may choose an alternative form of annuity. Online ez form If you make this choice, you will receive a lump-sum payment equal to your contributions to the plan and a reduced monthly annuity. Online ez form You are eligible to make this choice if you meet all of the following requirements. Online ez form You are retiring, but not on disability. Online ez form You have a life-threatening illness or other critical medical condition. Online ez form You do not have a former spouse entitled to court ordered benefits based on your service. Online ez form If you are not eligible or do not choose this alternative annuity, you can skip the following discussion and go to Federal Gift Tax , later. Online ez form Lump-Sum Payment The lump-sum payment you receive under the alternative annuity option generally has a tax-free part and a taxable part. Online ez form The tax-free part represents part of your cost. Online ez form The taxable part represents part of the earnings on your annuity contract. Online ez form Your lump-sum credit (discussed later) may include a deemed deposit or redeposit that is treated as being included in your lump-sum payment even though you do not actually receive such amounts. Online ez form Deemed deposits and redeposits, which are described later under Lump-sum credit , are taxable to you in the year of retirement. Online ez form Your taxable amount may therefore be more than the lump-sum payment you receive. Online ez form You must include the taxable part of the lump-sum payment in your income for the year you receive the payment unless you roll it over into another qualified plan or an IRA. Online ez form If you do not have OPM transfer the taxable amount to an IRA or other plan in a direct rollover, tax will be withheld at a 20% rate. Online ez form See Rollover Rules , later, for information on how to make a rollover. Online ez form OPM can make a direct rollover only up to the amount of the lump-sum payment. Online ez form Therefore, to defer tax on the full taxable amount if it is more than the payment, you must add funds from another source. Online ez form The taxable part of the lump-sum payment does not qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. Online ez form It also may be subject to an additional 10% tax on early distributions if you separate from service before the calendar year in which you reach age 55, even if you reach age 55 in the year you receive the lump-sum payment. Online ez form For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. Online ez form Worksheet B. Online ez form   Use Worksheet B. Online ez form Lump-Sum Payment (near the end of this publication), to figure the taxable part of your lump-sum payment. Online ez form Be sure to keep the completed worksheet for your records. Online ez form   To complete the worksheet, you will need to know the amount of your lump-sum credit and the present value of your annuity contract. Online ez form Lump-sum credit. Online ez form   Generally, this is the same amount as the lump-sum payment you receive (the total of your contributions to the retirement system). Online ez form However, for purposes of the alternative annuity option, your lump-sum credit also may include deemed deposits and redeposits that OPM advanced to your retirement account so that you are given credit for the service they represent. Online ez form Deemed deposits (including interest) are for federal employment during which no retirement contributions were taken out of your pay. Online ez form Deemed redeposits (including interest) are for any refunds of retirement contributions that you received and did not repay. Online ez form You are treated as if you had received a lump-sum payment equal to the amount of your lump-sum credit and then had made a repayment to OPM of the advanced amounts. Online ez form Present value of your annuity contract. Online ez form   The present value of your annuity contract is figured using actuarial tables provided by the IRS. Online ez form If you are receiving a lump-sum payment under the Alternative Annuity Option, you can write to the address below to find out the present value of your annuity contract. Online ez form Internal Revenue Service Attn: Actuarial Group 2 TE/GE SE:T:EP:RA:T:A2 NCA-629 1111 Constitution Ave. Online ez form , NW Washington, DC 20224-0002 Example. Online ez form David Brown retired from the federal government in 2013, one month after his 55th birthday. Online ez form He had contributed $31,000 to his retirement plan and chose to receive a lump-sum payment of that amount under the alternative annuity option. Online ez form The present value of his annuity contract was $155,000. Online ez form The tax-free part and the taxable part of the lump-sum payment are figured using Worksheet B, as shown below. Online ez form The taxable part ($24,800) is also his net cost in the plan, which is used to figure the taxable part of his reduced annuity payments. Online ez form See Reduced Annuity , later. Online ez form Worksheet B. Online ez form Lump-Sum Payment for David Brown See the instructions in Part II of this publication under Alternative Annuity Option . Online ez form  1. Online ez form Enter your lump-sum credit (your cost in the plan at the annuity starting date) 1. Online ez form $ 31,000 2. Online ez form Enter the present value of your annuity contract 2. Online ez form 155,000 3. Online ez form Divide line 1 by line 2 3. Online ez form . Online ez form 20 4. Online ez form Tax-free amount. Online ez form Multiply line 1 by line 3. Online ez form (Caution: Do not include this amount on line 6 of Worksheet A in this publication. Online ez form ) 4. Online ez form $6,200 5. Online ez form Taxable amount (net cost in the plan). Online ez form Subtract line 4 from line 1. Online ez form Include this amount in the total on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Online ez form Also, enter this amount on line 2 of Worksheet A in this publication. Online ez form 5. Online ez form $24,800   Lump-sum payment in installments. Online ez form   If you choose the alternative annuity option, you usually will receive the lump-sum payment in two equal installments. Online ez form You will receive the first installment after you make the choice upon retirement. Online ez form The second installment will be paid to you, with interest, in the next calendar year. Online ez form (Exceptions to the installment rule are provided for cases of critical medical need. Online ez form )   Even though the lump-sum payment is made in installments, the overall tax treatment (explained at the beginning of this discussion) is the same as if the whole payment were paid at once. Online ez form If the payment has a tax-free part, you must treat the taxable part as received first. Online ez form How to report. Online ez form   Add any actual or deemed payment of your lump-sum credit (defined earlier) to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Online ez form Add the taxable part to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b, unless you roll over the taxable part to your traditional IRA or a qualified retirement plan. Online ez form    If you receive the lump-sum payment in two installments, include any interest paid with the second installment on line 8a of either Form 1040 or Form 1040A, or on line 9a of Form 1040NR. Online ez form Reduced Annuity If you have chosen to receive a lump-sum payment under the alternative annuity option, you also will receive reduced monthly annuity payments. Online ez form These annuity payments each will have a tax-free and a taxable part. Online ez form To figure the tax-free part of each annuity payment, you must use the Simplified Method (Worksheet A). Online ez form For instructions on how to complete the worksheet, see Worksheet A under Simplified Method, earlier. Online ez form To complete Worksheet A, line 2, you must reduce your cost in the plan by the tax-free part of the lump-sum payment you received. Online ez form Enter as your net cost on line 2 the amount from Worksheet B, line 5. Online ez form Do not include the tax-free part of the lump-sum payment with other amounts recovered tax free (Worksheet A, line 6) when limiting your total exclusion to your total cost. Online ez form Example. Online ez form The facts are the same as in the example for David Brown in the preceding discussion. Online ez form In addition, David received 10 annuity payments in 2013 of $1,200 each. Online ez form Using Worksheet A, he figures the taxable part of his annuity payments. Online ez form He completes line 2 by reducing his $31,000 cost by the $6,200 tax-free part of his lump-sum payment. Online ez form His entry on line 2 is his $24,800 net cost in the plan (the amount from Worksheet B, line 5). Online ez form He does not include the tax-free part of his lump-sum payment on Worksheet A, line 6. Online ez form David's filled-in Worksheet A is shown on the next page. Online ez form Worksheet A. Online ez form Simplified Method for David Brown See the instructions in Part II of this publication under Simplified Method . Online ez form 1. Online ez form Enter the total pension or annuity payments received this year. Online ez form Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Online ez form $ 12,000 2. Online ez form Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. Online ez form See Your cost in Part II, Rules for Retirees, earlier 2. Online ez form 24,800 Note: If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Online ez form Otherwise, go to line 3. Online ez form   3. Online ez form Enter the appropriate number from Table 1 below. Online ez form But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below. Online ez form 3. Online ez form 360 4. Online ez form Divide line 2 by the number on line 3 4. Online ez form 68. Online ez form 89 5. Online ez form Multiply line 4 by the number of months for which this year's payments were made. Online ez form If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Online ez form Otherwise, go to line 6 5. Online ez form 688. Online ez form 90 6. Online ez form Enter any amounts previously recovered tax free in years after 1986. Online ez form This is the amount shown on line 10 of your worksheet for last year 6. Online ez form 0 7. Online ez form Subtract line 6 from line 2 7. Online ez form 24,800 8. Online ez form Enter the smaller of line 5 or line 7 8. Online ez form 688. Online ez form 90 9. Online ez form Taxable amount for year. Online ez form Subtract line 8 from line 1. Online ez form Enter the result, but not less than zero. Online ez form Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. Online ez form If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. Online ez form If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. Online ez form If you are a retired public safety officer, see Distributions Used To Pay Insurance Premiums for Public Safety Officers in Part II before entering an amount on your tax return or Worksheet C, line 1 9. Online ez form $11,311. Online ez form 10 10. Online ez form Was your annuity starting date before 1987?   Yes. Online ez form Do not complete the rest of this worksheet. Online ez form    No. Online ez form Add lines 6 and 8. Online ez form This is the amount you have recovered tax free through 2013. Online ez form You will need this number if you need to fill out this worksheet next year 10. Online ez form 688. Online ez form 90 11. Online ez form Balance of cost to be recovered. Online ez form Subtract line 10 from line 2. Online ez form If zero, you will not have to complete this worksheet next year. Online ez form The payments you receive next year will generally be fully taxable 11. Online ez form $24,111. Online ez form 10 Table 1 for Line 3 Above    IF your age on your annuity starting date was   AND your annuity starting date was—     before November 19, 1996,  THEN enter on line 3 after November 18, 1996,  THEN enter on line 3   55 or under 300 360   56–60 260 310   61–65 240 260   66–70 170 210   71 or over 120 160  Table 2 for Line 3 Above    IF the annuitants' combined ages on your annuity starting date were   THEN enter on line 3         110 or under   410         111–120   360         121–130   310         131–140   260         141 or over   210       * A death benefit exclusion of up to $5,000 applied to certain benefits received by survivors of employees who died before August 21, 1996. Online ez form Reemployment after choosing the alternative annuity option. Online ez form If you chose this option when you retired and then you were reemployed by the Federal Government before retiring again, your Form CSA 1099R may show only the amount of your contributions to your retirement plan during your reemployment. Online ez form If the amount on the form does not include all your contributions, disregard it and use your total contributions to figure the taxable part of your annuity payments. Online ez form Annuity starting date before November 19, 1996. Online ez form   If your annuity starting date is before November 19, 1996, and you chose the alternative annuity option, the taxable and tax-free parts of your lump-sum payment and your annuity payments are figured using different rules. Online ez form Under those rules, you do not reduce your cost in the plan (Worksheet A, line 2) by the tax-free part of the lump-sum payment. Online ez form However, you must include that tax-free amount with other amounts previously recovered tax free (Worksheet A, line 6) when limiting your total exclusion to your total cost. Online ez form Federal Gift Tax If, through the exercise or nonexercise of an election or option, you provide an annuity for your beneficiary at or after your death, you have made a gift. Online ez form The gift may be taxable for gift tax purposes. Online ez form The value of the gift is equal to the value of the annuity. Online ez form Joint and survivor annuity. Online ez form   If the gift is an interest in a joint and survivor annuity where only you and your spouse can receive payments before the death of the last spouse to die, the gift generally will qualify for the unlimited marital deduction. Online ez form This will eliminate any gift tax liability with regard to that gift. Online ez form   If you provide survivor annuity benefits for someone other than your current spouse, such as your former spouse, the unlimited marital deduction will not apply. Online ez form This may result in a taxable gift. Online ez form More information. Online ez form   For information about the gift tax, see Publication 950, Introduction to Estate and Gift Taxes, and Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, and its instructions. Online ez form Retirement During the Past Year If you have recently retired, the following discussions covering annual leave, voluntary contributions, and community property may apply to you. Online ez form Annual leave. Online ez form   A payment for accrued annual leave received on retirement is a salary payment. Online ez form It is taxable as wages in the tax year you receive it. Online ez form Voluntary contributions. Online ez form   Voluntary contributions to the retirement fund are those made in addition to the regular contributions that were deducted from your salary. Online ez form They also include the regular contributions withheld from your salary after you have the years of service necessary for the maximum annuity allowed by law. Online ez form Voluntary contributions are not the same as employee contributions to the Thrift Savings Plan. Online ez form See Thrift Savings Plan , later. Online ez form Additional annuity benefit. Online ez form   If you choose to receive an additional annuity benefit from your voluntary contributions, it is treated separately from the annuity benefit that comes from the regular contributions deducted from your salary. Online ez form This separate treatment applies for figuring the amounts to be excluded from, and included in, gross income. Online ez form It does not matter that you receive only one monthly check covering both benefits. Online ez form Each year you will receive a Form CSA 1099R that will show how much of your total annuity received in the past year was from each type of benefit. Online ez form   Figure the taxable and tax-free parts of your additional monthly benefits from voluntary contributions using the rules that apply to regular CSRS and FERS annuities, as explained earlier. Online ez form Refund of voluntary contributions. Online ez form   If you choose to receive a refund of your voluntary contributions plus accrued interest, the interest is taxable to you in the tax year it is distributed unless you roll it over to a traditional IRA or another qualified retirement plan. Online ez form If you do not have OPM transfer the interest to a traditional IRA or other qualified retirement plan in a direct rollover, tax will be withheld at a 20% rate. Online ez form See Rollover Rules , later. Online ez form The interest does not qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. Online ez form It also may be subject to an additional 10% tax on early distributions if you separate from service before the calendar year in which you reach age 55. Online ez form For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. Online ez form Community property laws. Online ez form   State community property laws apply to your annuity. Online ez form These laws will affect your income tax only if you file a return separately from your spouse. Online ez form   Generally, the determination of whether your annuity is separate income (taxable to you) or community income (taxable to both you and your spouse) is based on your marital status and domicile when you were working. Online ez form Regardless of whether you are now living in a community property state or a noncommunity property state, your current annuity may be community income if it is based on services you performed while married and domiciled in a community property state. Online ez form   At any time, you have only one domicile even though you may have more than one home. Online ez form Your domicile is your fixed and permanent legal home that you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. Online ez form The question of your domicile is mainly a matter of your intentions as indicated by your actions. Online ez form   If your annuity is a mixture of community income and separate income, you must divide it between the two kinds of income. Online ez form The division is based on your periods of service and domicile in community and noncommunity property states while you were married. Online ez form   For more information, see Publication 555, Community Property. Online ez form Reemployment After Retirement If you retired from federal service and are later rehired by the Federal Government as an employee, you can continue to receive your annuity during reemployment. Online ez form The employing agency usually will pay you the difference between your salary for your period of reemployment and your annuity. Online ez form This amount is taxable as wages. Online ez form Your annuity will continue to be taxed just as it was before. Online ez form If you are still recovering your cost, you continue to do so. Online ez form If you have recovered your cost, the annuity you receive while you are reemployed generally is fully taxable. Online ez form Nonresident Aliens The following special rules apply to nonresident alien federal employees performing services outside the United States and to nonresident alien retirees and beneficiaries. Online ez form A nonresident alien is an individual who is not a citizen or a resident alien of the United States. Online ez form Special rule for figuring your total contributions. Online ez form   Your contributions to the retirement plan (your cost) also include the government's contributions to the plan to a certain extent. Online ez form You include government contributions that would not have been taxable to you at the time they were contributed if they had been paid directly to you. Online ez form For example, government contributions would not have been taxable to you if, at the time made, your services were performed outside the United States. Online ez form Thus, your cost is increased by these government contributions and the benefits that you, or your beneficiary, must include in income are reduced. Online ez form   This method of figuring your total contributions does not apply to any contributions the government made on your behalf after you became a citizen or a resident alien of the United States. Online ez form Limit on taxable amount. Online ez form   There is a limit on the taxable amount of payments received from the CSRS, the FERS, or the TSP by a nonresident alien retiree or nonresident alien beneficiary. Online ez form Figure this limited taxable amount by multiplying the otherwise taxable amount by a fraction. Online ez form The numerator of the fraction is the retiree's total U. Online ez form S. Online ez form Government basic pay, other than tax-exempt pay for services performed outside the United States. Online ez form The denominator is the retiree's total U. Online ez form S. Online ez form Government basic pay for all services. Online ez form    Basic pay includes regular pay plus any standby differential. Online ez form It does not include bonuses, overtime pay, certain retroactive pay, uniform or other allowances, or lump-sum leave payments. Online ez form   To figure the limited taxable amount of your CSRS or FERS annuity or your TSP distributions, use Worksheet C. Online ez form (For an annuity, first complete Worksheet A in this publication. Online ez form ) Worksheet C. Online ez form Limited Taxable Amount for Nonresident Alien 1. Online ez form Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Forms CSA 1099R or CSF 1099R) or TSP distributions (from Form 1099R) 1. Online ez form   2. Online ez form Enter the total U. Online ez form S. Online ez form Government basic pay other than tax-exempt pay for services performed outside the United States 2. Online ez form   3. Online ez form Enter the total U. Online ez form S. Online ez form Government basic pay for all services 3. Online ez form   4. Online ez form Divide line 2 by line 3 4. Online ez form   5. Online ez form Limited taxable amount. Online ez form Multiply line 1 by line 4. Online ez form Enter this amount on Form 1040NR, line 17b 5. Online ez form   Example 1. Online ez form You are a nonresident alien who performed all services for the U. Online ez form S. Online ez form Government abroad as a nonresident alien. Online ez form You retired and began to receive a monthly annuity of $200. Online ez form Your total basic pay for all services for the U. Online ez form S. Online ez form Government was $100,000. Online ez form All of your basic pay was tax exempt because it was not U. Online ez form S. Online ez form source income. Online ez form The taxable amount of your annuity using Worksheet A in this publication is $720. Online ez form You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows. Online ez form Worksheet C. Online ez form Limited Taxable Amount for Nonresident Alien — Example 1 1. Online ez form Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Forms CSA 1099R or CSF 1099R) or TSP distributions (from Form 1099R) 1. Online ez form $ 720 2. Online ez form Enter the total U. Online ez form S. Online ez form Government basic pay other than tax-exempt pay for services performed outside the United States 2. Online ez form 0 3. Online ez form Enter the total U. Online ez form S. Online ez form Government basic pay for all services 3. Online ez form 100,000 4. Online ez form Divide line 2 by line 3 4. Online ez form 0 5. Online ez form Limited taxable amount. Online ez form Multiply line 1 by line 4. Online ez form Enter this amount on Form 1040NR, line 17b 5. Online ez form 0 Example 2. Online ez form You are a nonresident alien who performed services for the U. Online ez form S. Online ez form Government as a nonresident alien both within the United States and abroad. Online ez form You retired and began to receive a monthly annuity of $240. Online ez form Your total basic pay for your services for the U. Online ez form S. Online ez form Government was $120,000; $40,000 was for work done in the United States and $80,000 was for your work done in a foreign country. Online ez form The part of your total basic pay for your work done in a foreign country was tax exempt because it was not U. Online ez form S. Online ez form source income. Online ez form The taxable amount of your annuity figured using Worksheet A in this publication is $1,980. Online ez form You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows. Online ez form Worksheet C. Online ez form Limited Taxable Amount for Nonresident Alien — Example 2 1. Online ez form Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Forms CSA 1099R or CSF 1099R) or TSP distributions (from Form 1099R) 1. Online ez form $ 1,980 2. Online ez form Enter the total U. Online ez form S. Online ez form Government basic pay other than tax-exempt pay for services performed outside the United States 2. Online ez form 40,000 3. Online ez form Enter the total U. Online ez form S. Online ez form Government basic pay for all services 3. Online ez form 120,000 4. Online ez form Divide line 2 by line 3 4. Online ez form . Online ez form 333 5. Online ez form Limited taxable amount. Online ez form Multiply line 1 by line 4. Online ez form Enter this amount on Form 1040NR, line 17b 5. Online ez form 659 Thrift Savings Plan Generally, all of the money in your TSP account is taxed as ordinary income when you receive it. Online ez form (However, see Roth TSP balance and Uniformed services TSP accounts, next. Online ez form ) This is because neither the contributions to your traditional TSP balance nor its earnings have been included previously in your taxable income. Online ez form The way that you withdraw your account balance determines when you must pay the tax. Online ez form Roth TSP balance. Online ez form   The TSP also offers a Roth TSP option, which allows you to make after-tax contributions into your TSP account. Online ez form This means Roth TSP contributions are included in your income. Online ez form The contribution limits are the same as the traditional TSP. Online ez form You can elect to have part or all of your TSP contributions designated as a Roth TSP. Online ez form Agency contributions will be part of your traditional TSP balance. Online ez form Also, you cannot roll over any portion of your traditional TSP into your Roth TSP. Online ez form   Qualified distributions from your Roth TSP are not included in income. Online ez form This applies to both your cost in the account and income earned on that account. Online ez form A qualified distribution is generally a distribution that is: Made after a 5-tax-year period of participation, and Made on or after the date you reach age 59½, made to a beneficiary or your estate on or after your death, or attributable to your being disabled. Online ez form   For more information, go to the TSP website, www. Online ez form tsp. Online ez form gov, or the TSP Service Office. Online ez form See Publication 575, Pension and Annuity Income, for more information about designated Roth accounts. Online ez form Uniformed services TSP accounts. Online ez form   If you have a uniformed services TSP account that includes contributions from combat zone pay, the distributions attributable to those contributions are tax exempt. Online ez form However, any earnings on those contributions to a traditional TSP balance are subject to tax when they are distributed. Online ez form See Roth TSP balance discussed previously to get more information about Roth contributions. Online ez form The statement you receive from the TSP will separately state the total amount of your distribution and the amount of your taxable distribution for the year. Online ez form You can get more information from the TSP website, www. Online ez form tsp. Online ez form gov, or the TSP Service Office. Online ez form Direct rollover by the TSP. Online ez form   If you ask the TSP to transfer any part of the money in your account, from traditional contributions and its earnings, to a traditional IRA or other qualified retirement plan, the tax on that part is deferred until you receive payments from the traditional IRA or other plan. Online ez form However, see the following Note for a discussion on direct rollovers by the TSP of Roth contributions and its earnings. Online ez form Also, see Rollover Rules , later. Online ez form Direct rollover by the TSP to a Roth IRA. Online ez form   If you ask the TSP to transfer any part of the money in your account, from traditional contributions and its earnings, to a Roth IRA, the amount transferred will be taxed in the current year. Online ez form However, see the following Note for a discussion on direct rollovers by the TSP of Roth contributions and its earnings. Online ez form Also, see Rollovers to Roth IRAs for more information, later. Online ez form Note. Online ez form A direct rollover of your Roth contributions and its earnings (if certain conditions are met, see Roth TSP balance , earlier) in your TSP account to a Roth 401(k), Roth 403(b), Roth 457(b), or Roth IRA are not subject to tax when they are transferred or when you receive payments from those accounts at a later date. Online ez form This is because you already paid tax on those contributions. Online ez form You cannot rollover Roth contributions and its earnings in your TSP account to a traditional IRA. Online ez form TSP annuity. Online ez form   If you ask the TSP to buy an annuity with the money in your account, from traditional contributions and its earnings, the annuity payments are taxed when you receive them. Online ez form The payments are not subject to the additional 10% tax on early distributions, even if you are under age 55 when they begin. Online ez form However, there is no tax on the annuity payments if the annuity is purchased using the money in your account from Roth contributions and its earnings if certain conditions are met. Online ez form See Roth TSP balance , earlier. Online ez form This is because you already paid tax on those contributions. Online ez form Cash withdrawals. Online ez form   If you withdraw any of the money in your TSP account, from traditional contributions and its earnings, it is generally taxed as ordinary income when you receive it unless you roll it over into a traditional IRA or other qualified plan. Online ez form (See Rollover Rules , later. Online ez form ) If you receive your entire TSP account balance in a single tax year, you may be able to use the 10-year tax option to figure your tax. Online ez form See Lump-Sum Distributions in Publication 575 for details. Online ez form However, there is no tax if you withdraw money in your TSP account from Roth contributions and its earnings if certain conditions are met. Online ez form See Roth TSP balance , earlier. Online ez form    To qualify for the 10-year tax option, the plan participant must have been born before January 2, 1936. Online ez form   If you receive a single payment or you choose to receive your account balance in monthly payments over a period of less than 10 years, the TSP generally must withhold 20% for federal income tax. Online ez form If you choose to receive your account balance in monthly payments over a period of 10 or more years or a period based on your life expectancy, the payments are subject to withholding as if you are married with three withholding allowances, unless you submit a withholding certificate. Online ez form See also Withholding from Thrift Savings Plan payments earlier under Tax Withholding and Estimated Tax in Part I. Online ez form However, there is no withholding requirement for amounts withdrawn from your TSP account that is from Roth contributions and its earnings, if certain conditions are met. Online ez form See Roth TSP balance , earlier, for a discussion of those conditions. Online ez form Tax on early distributions. Online ez form   Any money paid to you from your TSP account before you reach age 59½ may be subject to an additional 10% tax on early distributions. Online ez form However, this additional tax does not apply in certain situations, including any of the following. Online ez form You receive the distribution and separate from government service during or after the calendar year in which you reach age 55. Online ez form You choose to receive your account balance in monthly payments based on your life expectancy. Online ez form You are totally and permanently disabled. Online ez form You receive amounts from your Roth contributions since that represents a return of your cost (after-tax money). Online ez form The earnings may be subject to the 10% tax depending on whether you met certain conditions. Online ez form See Roth TSP balance , earlier. Online ez form   For more information, see Tax on Early Distributions in Publication 575. Online ez form Outstanding loan. Online ez form   If the TSP declares a distribution from your account because money you borrowed has not been repaid when you separate from government service, your account is reduced and the amount of the distribution (your unpaid loan balance and any unpaid interest), from traditional contributions and its earnings, is taxed in the year declared. Online ez form The distribution also may be subject to the additional 10% tax on early distributions. Online ez form However, the tax will be deferred if you make a rollover contribution to a traditional IRA or other qualified plan equal to the declared distribution amount. Online ez form See Rollover Rules , later. Online ez form   If you withdraw any money from your TSP account in that same year, the TSP must withhold income tax of 20% of the total of the declared distribution and the amount withdrawn. Online ez form However, no withholding is required for portions of the distribution that is from Roth contributions and its earnings, if certain conditions are met. Online ez form See Roth TSP balance , earlier. Online ez form More information. Online ez form   For more information about the TSP, see Summary of the Thrift Savings Plan, distributed to all federal employees. Online ez form Also, see Important Tax Information About Payments From Your TSP Account and Special Tax Withholding Rules for Thrift Savings Plan Payments to Nonresident Aliens, which are available from your agency personnel office or from the TSP by calling 1-TSP-YOU-FIRST (1-877-968-3778) and for participants who are deaf, hard of hearing, or have a speech disability, call 1-TSP-THRIFT5 (1-877-847-4385). Online ez form    The above documents are also available on the TSP website at www. Online ez form tsp. Online ez form gov. Online ez form Select “Forms & Publications. Online ez form ” Rollover Rules Generally, a rollover is a tax-free withdrawal of cash or other assets from one qualified retirement plan or traditional IRA and its reinvestment in another qualified retirement plan or traditional IRA. Online ez form You do not include the amount rolled over in your income, and you cannot take a deduction for it. Online ez form The amount rolled over is taxed later as the new program pays that amount to you. Online ez form If you roll over amounts into a traditional IRA, later distributions of these amounts from the traditional IRA do not qualify for the capital gain or the 10-year tax option. Online ez form However, capital gain treatment or the 10-year tax option will be restored if the traditional IRA contains only amounts rolled over from a qualified plan and these amounts are rolled over from the traditional IRA into a qualified retirement plan. Online ez form To qualify for the capital gain treatment or 10-year tax option, the plan participant must have been born before January 2, 1936. Online ez form You can also roll over a distribution from a qualified retirement plan into a Roth IRA. Online ez form Although the transfer of a distribution into a Roth IRA is considered a rollover for Roth IRA purposes, it is not a tax-free transfer unless you are rolling over amounts from Roth contributions and its earnings. Online ez form See Rollovers to Roth IRAs , later, for more information. Online ez form Qualified retirement plan. Online ez form   For this purpose, a qualified retirement plan generally is: A qualified employee plan, A qualified employee annuity, A tax-sheltered annuity plan (403(b) plan), or An eligible state or local government section 457 deferred compensation plan. Online ez form The CSRS, FERS, and TSP are considered qualified retirement plans. Online ez form Distributions eligible for rollover treatment. Online ez form   If you receive a refund of your CSRS or FERS contributions when you leave government service, you can roll over any interest you receive on the contributions. Online ez form You cannot roll over any part of your CSRS or FERS annuity payments. Online ez form   You can roll over a distribution of any part of your TSP account balance except: A distribution of your account balance that you choose to receive in monthly payments over: Your life expectancy, The joint life expectancies of you and your beneficiary, or A period of 10 years or more, A required minimum distribution generally beginning at age 70½, A declared distribution because of an unrepaid loan, if you have not separated from government service (see Outstanding loan under Thrift Savings Plan, earlier), or A hardship distribution. Online ez form   In addition, a distribution to your beneficiary generally is not treated as an eligible rollover distribution. Online ez form However, see Qualified domestic relations order (QDRO) and Rollovers by surviving spouse , and Rollovers by nonspouse beneficiary , later. Online ez form Direct rollover option. Online ez form   You can choose to have the OPM or TSP transfer any part of an eligible rollover distribution directly to another qualified retirement plan that accepts rollover distributions or to a traditional IRA or Roth IRA. Online ez form   There is an automatic rollover requirement for mandatory distributions. Online ez form A mandatory distribution is a distribution made without your consent and before you reach age 62 or normal retirement age, whichever is later. Online ez form The automatic rollover requirement applies if the distribution is more than $1,000 and is an eligible rollover distribution. Online ez form You can choose to have the distribution paid directly to you or rolled over directly to your traditional or Roth IRA or another qualified retirement plan. Online ez form If you do not make this choice, OPM will automatically roll over the distribution into an IRA of a designated trustee or issuer. Online ez form No tax withheld. Online ez form   If you choose the direct rollover option or have an automatic rollover, no tax will be withheld from any part of the distribution that is directly paid to the trustee of the other plan. Online ez form However, if the rollover is to a Roth IRA, you may want to choose to have tax withheld since any amount rolled over is generally included in income. Online ez form Any part of the eligible rollover distribution paid to you is subject to withholding at a 20% rate. Online ez form Direct roll over amounts from Roth contributions and its earnings do not have tax withheld because you already paid tax on those amounts. Online ez form Payment to you option. Online ez form   If an eligible rollover distribution is paid to you, the OPM or TSP must withhold 20% for income tax even if you plan to roll over the distribution to another qualified retirement plan, traditional or Roth IRA. Online ez form However, the full amount is treated as distributed to you even though you actually receive only 80%. Online ez form You generally must include in income any part (including the part withheld) that you do not roll over within 60 days to another qualified retirement plan or to a traditional IRA. Online ez form Rollovers to Roth IRAs are generally included in income. Online ez form Eligible rollover distributions that are from Roth contributions do not have tax withheld because you already paid tax on those amounts. Online ez form If you leave government service before the calendar year in which you reach age 55 and are under age 59½ when a distribution is paid to you, you may have to pay an additional 10% tax on any part, including any tax withheld, that you do not roll over. Online ez form However, distributions from Roth contributions will not be subject to the 10% additional tax because it is a return of your cost (after-tax money). Online ez form Earnings from those contributions may be subject to the 10% additional tax if certain conditions are not met. Online ez form See Roth TSP balance , earlier. Online ez form Also, see Tax on Early Distributions in Publication 575. Online ez form Exception to withholding. Online ez form   Withholding from an eligible rollover distribution paid to you is not required if the distributions for your tax year total less than $200. Online ez form Partial rollovers. Online ez form   A lump-sum distribution may qualify for capital gain treatment or the 10-year tax option if the plan participant was born before January 2, 1936. Online ez form See Lump-Sum Distributions in Publication 575. Online ez form However, if you roll over any part of the distribution, the part you keep does not qualify for this special tax treatment. Online ez form Rolling over more than amount received. Online ez form   If you want to roll over more of an eligible rollover distribution than the amount you received after income tax was withheld, you will have to add funds from some other source (such as your savings or borrowed amounts). Online ez form Example. Online ez form You left government service at age 53. Online ez form On February 1, 2013, you receive an eligible rollover distribution of $10,000 from you