If you have had US tax over held on your US oncome, you may be wondering "When can I file to obtain a refund of overpaid US tax?".
This can only occur after the US tax year has closed, for any current year filing. For a prior year filing, you have 3 years to reclaim the tax, else it is lost.
When does the US tax year end?
The US tax year runs from January to December each year. And the end of the US tax year is therefore December 31st each year.
What does this mean for me?
Well, if you sold a US property for instance in January, and the 15% FIRPTA Tax had been held, you would not be able to file a reclaim of overpaid tax until the following January! and then the refund process (once the return is submitted), can take up to 6 months.
So a full 18 months before your tax is refunded to you.
Same applies in any other income cases and in some cases a few extra months are added on!
A good example is where a 1042-S form is issued to you:
e.g. 30% tax held on dividends or royalties received in February, you would need to wait longer to file, as the company that paid you has to issue a 1042-S form which must be attached to your US tax filing. This is not normally issued until February or March the following year. If it is not emailed to you, then you wait again for international mail to arrive!
The company - i.e. the US payor - has an obligation to report these and many other types of transactions to the IRS each year. The 1042-S form in particular, must be received first as the only way a non resident can reclaim the tax is by attaching it to the tax return being filed.
What happens once the tax return is submitted?
It's then a waiting game. If the return is for a current tax year, the refund is prioritised for that years filers. If it is an earlier tax year, it will take longer.
Current year - up to 6 months
Prior year - 6 to 12 months
All of the above are if the return is processed without issues.
If the IRS has questions, or needs extra paperwork, or even if it cannot locate the tax you are trying to reclaim (this happens where a US tax number (SSN or ITIN) was not included on the 1042-S), the refund will take longer. Occasionally the IRS also post into the wrong tax year! we've seen this happen first hand and it took almost a year to fix (although it was during Covid times).
Anytime a 1042-S is attached to a return, the IRS allows themselves 6 months to locate the tax. They may even send an informational letter ( LTR 5877C) advising the return is in processing and you don't need to do anything, we will be in touch if we need more details.
As a bonus for the delays though, the IRS will pay you interest on the amount refunded....happy days!
Contact Just Breve for more information:
Just Breve - is a US tax accounting firm, assisting non US persons with their US tax filing requirements, including obtaining a refund of overpaid US tax. This includes applying for a new ITIN or renewing an existing ITIN. We are a certifying acceptance agent (CAA) and have a contract with the IRS to help with Form W-7 ITIN applications.
T: 0208 1444632
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