What Does Tax Mean
May 23rd, 2008
Question: what does underreported of income tax mean?
I put some money to invest with my local bank. After couple of months, they started withholding some of my interest. When I asked them about that, they said that the I am underreported of income tax by the IRS. I am an international student in the US, non-resident allien. When I file for my return, the tax office who does my return submits 1040 form, not the 1040-NR, they said it would not matter. So? what am I in to?
Answer: How long have you been a student on an F-1 visa? More than 5 years? Then you are now a resident alien and interest income is taxable. At this point, your bank would want you to fill out a W-9. And at year 6, the correct form to file is the 1040.
If you have been on an F-1 visa LESS than 6 years, then you are a non-resident alien and the interest income is non-taxable. When you opened the bank account you were to give them a W-8Ben showing your non-resident status. This form expires 3 years later, so you need to give them another one. The correct tax return to file is the 1040NR.
And yes, it DOES matter which form you use. 1040 has a standard deduction that unless you are from India, you have no right to. If you made more than $5000 in income, you could owe tax and penalties for those prior years.
So you did one of three things:
1. Expired W-8Ben, so they started withholding at 30%.
2. Invalid or missing W-9 and they thought you were a resident and started withholding at 28%.
3. You really do file a 1040 and have continuously forgotten to report the interest income, causing the IRS to send a backup withholding letter to the bank, so they are withholding at 28%.To correct:
1. Find a competent preparer.
2. File the correct return(s). To correct past years, you fill out a 1040X (skip all numbered lines), attach a brand new 1040NR or 1040NR-EZ, form 8843 and a check for the difference in tax (the IRS will bill you later for interest and penalties).
3. For 2008, you file the correct form. If this is a 1040NR, do not show the interest income, but show the withholding and attach a copy of the 1099-INT that shows the withholding to to the tax return.
4. Give the bank the correct form W-8Ben or W-9.
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BEAVERTON, Ore. -- As Oregon business interests and others band together to fight new taxes in the state, both sides are taking their arguments to voters. In Beaverton, dozens of voters gathered Monday for a debate between the supporters of Measures 66 and 67 and those who would overturn the measures. The tax hikes were passed by the Oregon legislature, then referred to voters, who will decide ...
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