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Where Taxpayers and Advisers Meet

How to enter interest received from IRS onto 1040NR

Colin61
Posts:8
Joined:Sun Dec 31, 2017 3:53 pm
How to enter interest received from IRS onto 1040NR

Postby Colin61 » Fri Jan 29, 2021 5:50 pm

Due to delays in IRS processing my 2019 refund they paid me $225 interest ( notified on a Form 1099).

Other than income from an IRA, which is exempt from tax by UK-USA treaty, my USA income is 0.

Will tax be due on this IRA interest? Is there a deduction; if so, can you point me in the right direction please?

DavidTreitel
Posts:240
Joined:Thu Aug 16, 2012 4:31 pm

Re: How to enter interest received from IRS onto 1040NR

Postby DavidTreitel » Sat Jan 30, 2021 1:29 pm

Assuming you are a UK resident subject to UK tax on the arising basis the interest is reported on a UK self-assessment return as foreign interest. From a US perspective the reporting will depend on whether or not you are a US person.

Colin61
Posts:8
Joined:Sun Dec 31, 2017 3:53 pm

Re: How to enter interest received from IRS onto 1040NR

Postby Colin61 » Sat Jan 30, 2021 8:26 pm

Assuming you are a UK resident subject to UK tax on the arising basis the interest is reported on a UK self-assessment return as foreign interest. From a US perspective the reporting will depend on whether or not you are a US person.
Thanks David, my fear is that if I do not report this on my 2020 USA tax return, it may cause issues and affect the much larger refund of the tax paid on my IRA. This is particularly true as the interest was actually paid by the IRS. Hence, I feel it may be better to enter it on the USA form and pay the tax there. Following further research since posting the original query, I have figured out how to enter the interest and calculate the tax arising.

Do you see a downside to that approach?

DavidTreitel
Posts:240
Joined:Thu Aug 16, 2012 4:31 pm

Re: How to enter interest received from IRS onto 1040NR

Postby DavidTreitel » Sat Jan 30, 2021 8:36 pm

Assuming you are a non-resident alien, the interest is completely exempt from US tax. That's what the law says, filing a return contrary to law is not usually prudent.

If the IRA distribution is periodic, it is also completely exempt from US tax. Having the IRS delay the refund would nonetheless be a GOOD THING because the interest rate they currently pay on delayed refunds is an excellent 3% a year!


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