If you are an athlete or performer who has visited the US to perform/participate in events, you may have had 30% tax withheld at source on your US income.
The payer will also have issued a 1042-S document to you showing the gross income and US tax withheld.
Form 1042-S - Foreign Person's U.S. Source Income Subject to Withholding
Form 1042-S is issued to any foreign individual receiving US source income for a variety of reasons. One of those reasons can be if you worked for a period of time in the US. The document covers a calendar year and will be issued to you the following year (by February or March). In some cases you may have been issued a W-2.
Both documents effectively show similar items and both are required to be attached to a US 1040NR tax return to make a claim for a refund of US tax withheld.
How much tax can I claim back?
Under the US/UK tax treaty, as a performer you are exempt for any income up to and including $20,000 per Article 16 of the US/UK tax treaty.
If you are one cent above this however, the full amount becomes taxable at US graduated income tax rates. For 2020 these rates range between 10% and 37%:
10% - $0 to $9,875
12% - $9,876 to $40,125
22% - $40,126 to $85,525
24% - $85,526 to $163,300
32% - $163,301 to $207,350
35% - $207,351 to $518,400
37% - $518,401 or more
As you can see, if you earned US source income of $40,000 - you would be paying a blended rate of 10-12% - much less than the 30% withheld by the payer.
If I owed less, why did they hold 30%?
A flat 30% withholding is applicable to all non residents of the US (unless a tax treaty exists that may reduce it). Most US payors play safe, and withhold the 30%. This then means, you have to file a US tax return to claim back any excess tax.
So I file a 1040NR to claim back the tax - is that it?
Yes and no - if you do not have a US tax identification number (SSN or ITIN) - you will need to apply for this simultaneously while filing the return.
To apply for an ITIN you would need to attach Form W-7 to the tax return being filed. SSN's can only be applied for with the relevant work visa.
In some cases, you may also have to file a State tax return (depending on the state you performed in) - we will advise if that is the case.
Can Just Breve assist with both an ITIN and a 1040NR?
Yes! and we do all the time. You'll provide us with the relevant withholding documents as well as days spent in the US. We'll advise what information we need from the outset.
We try and make the process as simple as possible for you.
Once complete, we will either meet (or have a video call) to finalize the documentation (including the ITIN).
How long before I get my refund?
Refunds can take as long as 3 to 6 months (plus 7 to 11 weeks to have the ITIN issued). Due to Covid19 however, there are significant delays in processing, so this will more likely double in timescale due to reduced staffing at the IRS.
Contact us today:
Just Breve are a Certified Acceptance Agent (CAA) for ITIN purposes as well as an Enrolled Agent (EA) that can assist with US tax return preparation and refunds of overpaid US tax.
T: 0208 1444632
We are based near London Heathrow. We can visit you or you can come to us. If you are at a distance we can assist via video call.