May a foreign national and designated beneficary without a USA social

[Guest Cliff Langwith]

A Mexican with a U.S. social security number and participant in his company's Pension Plan dies. He completed a beneficiary designation form, but at the time nobody noticed the absence of a social security number for the designated beneficiary. The beneficiary is determined to be a Mexican National without a USA social security number.

Does anyone have experience with this kind of issue? What are the laws regarding distributions to beneficiaries outside the USA?

[Guest]

Yes,

the issue is the treatment of the NonResident alien. IF the beneficiary is treated as an NRA, no SSN is needed but there is 30% NRA witholding on the distribution.

Drop me a note and I can give more detail.

[Guest]

b2kates-

I'm surprised that there would be 30% withholding in this cae. Doesn't Mexico have a tax treaty with the U.S. that would exempt the payment from U.S. withholding (assuming the beneficiary provides the necessary paperwork)?

[Guest Cliff Langwith]

Originally posted by b2kates

Yes,

the issue is the treatment of the NonResident alien.  IF the beneficiary is treated as an NRA, no SSN is needed but there is 30% NRA witholding on the distribution.

Drop me a note and I can give more detail.

Without the beneficiary possessing a social security number to whom is credited with the withholding of 30% - the deceased?

[Guest]

Subject to the existence of a Tax Treaty with Mexico, (check pub 515), the recipient of the monies is the taxed person. The beneficiary would receive a 1042-S, no SSN is required.

Yes there is a Mexico Treaty, in order for the beneficiary to receive the benefit of the treaty, the beneficiary must provide Form W-8Ben.

[Guest Cliff Langwith]

b2kates,

Thanks for the info.

[Guest Retina]

I have similar situation, but different in that a distribution is owed to a living participant from Canada that has provided a bad SS#. Should the plan treat him as a NRA and give him a 1042-S and w/h 30%?

[Guest HFOSTER]

I also have been asked this question by a participant whose beneficiary is in the Philippines (no ss#). I have the same question, is the 30% withholding general for all non U.S. beneficiaries and does the withholding get deposited under the plan participant's ss#?

[Appleby]

I have similar situation, but different in that a distribution is owed to a living participant from Canada that has provided a bad SS#.  Should the plan treat him as a NRA and give him a 1042-S and w/h 30%?

If the individual is not a NRA (i.e. is a US citizen or resident alien), then the withholding rules under Sec 3405 is applies, i.e. if the amount is rollover eligible, then the payor must withhold 20%, unless the amount is being rolled to an eligible retirement plan. If the amount is not rollover eligible, then you must withhold 10 percent. This 10 percent withholding cannot be waived if the individual does not provide a correct TIN.

It appears that even if the individual is an NRA a TIN is still required, albeit not before the distribution occurs. If the TIN is not provided, 30% must be withheld, regardless of the treaty rate… also the distribution can be accommodated without the TIN, providing the payee provides some assurance that the Tin is applied for and will be provided when issued . For NRAs who are not eligible to receive a SSN, they may apply for an ITIN

There are certain procedures that the payor must follow when it is discovered that the TIN is missing or invalid. See publication 1586

[Guest jdw]

Here is the process, regardless of country that beneficiary resides in:

Beneficiary get an individual taxpayer identification number using IRS form W-7.

Beneficiary completes IRS form W-8BEN using the ITIN and send it to plan. The W-8BEN allows the beneficiary to assert any tax treaty rights to reduced or no withholding. Note that the W-8BEN cannot be used by a US citizen or resident alien.

If beneficiary asserts tax treaty rights to no withholding, and plan administrator agrees, plan pays beneficiary without withholding. The IRS website has several treaties. See http://www.irs.gov/businesses/corporations...d=96739,00.html. If no treaty rights claimed or available, plan pays minus withholding.

Plan files IRS form 1042-S to report the distrubution, not 1099-R.

[Appleby]

Here is the process, regardless of country that beneficiary resides in:

Beneficiary get an individual taxpayer identification number using IRS form W-7.

Beneficiary completes IRS form W-8BEN using the ITIN and send it to plan. The W-8BEN allows the beneficiary to assert any tax treaty rights to reduced or no withholding. Note that the W-8BEN cannot be used by a US citizen or resident alien.

If beneficiary asserts tax treaty rights to no withholding, and plan administrator agrees, plan pays beneficiary without withholding. The IRS website has several treaties. See http://www.irs.gov/businesses/corporations...d=96739,00.html. If no treaty rights claimed or available, plan pays minus withholding.

Plan files IRS form 1042-S to report the distrubution, not 1099-R.

Not necessarily. The process that you outlined applies only if the beneficiary is a NRA, and only if the NRA chooses to waive withholding under IRC 3405.

If the beneficiary does not choose to waive 3405 withholding, then the regular withholding rules apply with no options to waive withholding…the TIN is provided on Form W-4P.