Withholding rules for Canadian's annuity directly deposited to US banking institution

[KaJay]

Background: A Canadian citizen, living in Canada, has elected to start an annuity from his US based 403(b). He has requested that the monthly payment be sent to his bank account in the US, rather than be mailed to his home address in Canada.

Questions:

1) Can the 403(b) plan treat the payments as though they were sent to a US person because the bank is located in the US and consequently apply withholding as though he is a US person?

2) If the payments were being sent to a residential address in the US for the same individual, does that change how we apply withholding?

3) If the answer to one of the above is that we can apply withholding as though he is a US person (married w/3 allowances), do the distributions get reported on a 1099-R or a 1042-S?

Thanks for your help!

[Peter Gulia]

You and your lawyer might find relevant law in Internal Revenue Code of 1986 (26 U.S.C.) §§ 1441-1143 and 3405(e)(13), and in regulations—26 C.F.R. §§ 1.1441-0 to -10.

 

“A payment from a trust described in section 401(a), an annuity plan described in section 403(a), a payment with respect to any annuity, custodial account, or retirement income account described in section 403(b), or a payment from an individual retirement account or individual retirement annuity described in section 408 that a withholding agent cannot reliably associate with documentation is presumed to be made to a U.S. person only if the withholding agent has a record of a [U.S.] Social Security number for the payee and relies on a mailing address described in the following sentence.  A mailing address is an address used for purposes of information reporting or otherwise communicating with the payee that is an address in the United States or in a foreign country with which the United States has an income tax treaty in effect and the treaty provides that the payee, if an individual resident in that country, would be entitled to an exemption from U.S. tax on amounts described in this paragraph (b)(3)(iii)(C).  Any payment described in this paragraph (b)(3)(iii)(C) that is not presumed to be made to a U.S. person is presumed to be made to a foreign person.  A withholding agent making a payment to a person presumed to be a foreign person may not reduce the 30-percent amount of withholding required on such payment unless it receives a withholding certificate described in paragraph (e)(2)(i) of this section furnished by the beneficial owner.  For reduction in the 30-percent rate, see §§ 1.1441-4(e) or 1.1441-6(b).”

 

26 C.F.R. § 1.1441-1(b)(3)(iii)(C).

 

A withholding agent must not treat a payee as a U.S. person if the withholding agent has actual knowledge or reason to know that the payee is not a U.S. person.

 

That a payee’s Individual Taxpayer Identification Number is not a valid U.S. Social Security Number might be a reason to treat the payee as not a U.S. person (absent “documentation” that proves the person to be a U.S. person).

 

Nothing in this post is tax or legal advice.

[KaJay]

Thank you!