5 Ways Uncle Sam Can Still Reach Non-Resident Aliens
So, you feel lucky that you are not an American citizen, with the tax headaches that a citizenship-based system bestows upon the not so lucky US expatriate. Not so fast. Even though you are not an American, you may not be safe from Uncle Sam’s long tax arms. Below are five instances where he could still potentially reach you:
Did you know that your estate could owe US estate tax if you owned US situs property at death? What is a US situs property, you ask? In general terms, it’s property located in or having a connection to the US. This includes stock in a US company, regardless of where that stock is held. If you own stock in General Electric via your Credit Suisse account in Switzerland, for example, that is US situs property for US estate tax purposes. As well, it includes US real estate and tangible personal property located in the United States including property in US safe deposit boxes. If your estate has more than $60,000 of US situs property, it may owe US estate tax. There are some Estate tax treaties between the US and various countries (Switzerland and UK, for example) that possibly will provide some relief.
Perhaps you took advice in the past and used a US LLC to hold some of your assets. All for legitimate purposes, of course. The best part of this setup was that there were no US tax filings required if you were a single member foreign-owned US LLC. Unfortunately, that is no longer the case. As of 2017, there are now reporting requirements for such US single member LLCs. As with most tax filing requirements in the US, even with information forms such as this one, there are penalties associated with non-compliance. You should contact us if you have such a structure to determine your filing requirements. Read our blog post on the 2017 LLC changes.
Possibly you own some US real estate and with the ever-increasing real estate prices, you are looking to lock in your profits and sell. Well, keep in mind the US tax withholding requirements on the sale of US real estate. You will be walking away with 15% less of the sale price due to the withholding requirements. Perhaps some or all of this tax can be reclaimed by filing a 1040NR tax return, but it will take time and will likely require a tax professional’s assistance. There are some exceptions to the withholding requirement, but you need to act in a timely fashion to apply for an exemption if it applies.
Do you have work days in the US? Then you may owe US tax (federal and/or state tax). There is no ‘one size fits all’ to the rules on taxation of wages related to US work days. It depends on various factors and needs to be looked at on a case by case basis. Perhaps you don’t owe federal tax but the state you worked in doesn’t accept the federal reason for not owing any tax on this income (California is but one example of a state where you can have state tax liability where you have no federal liability due to differences between California and federal law.).
Perhaps you have certain US-sourced income which should have taxes withheld at the source, such as dividends from US companies. Normally, the tax on US dividends should be withheld by the broker. However, if you failed to file the correct form with the broker, or filed the form incorrectly, then the amount of tax withheld may be incorrect. You may owe more tax than was withheld or perhaps too much tax was withheld and you are due a refund. In either case, you would need to file a US tax return to correctly take care of this issue.
These are but some of the possible circumstances where a non-resident alien may have to deal with Uncle Sam’s long reach. If you think you require advice/planning regarding your tax situation, please feel free to give us a call or email us.