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Discussion Starter · #1 · (Edited)
Dear all

I cancelled my 401K pension fund in 2020 and got the money from the insurance company through a check. I filed the W8BEN and live in tax treaty country.
Now, I got from insurance company saying that I need to file a federal tax, Insurance company filed 1042S and send that to IRS prior march 15 -2021.

I have not lived in US since 2013 and consequently do not normal do any tax declarations at all in US.

Anyone who can guide me what I have to do if any for the IRS / Federal tax.
The pension funds will be fully taxed in the country where I live.

Thanks for your guidance // Stoeten
 

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I cancelled my 401K pension fund in 2020 and got the money from the insurance company through a check. I filed the W8BEN and live in tax treaty country.
Firstly, two assumptions: you are not a US citizen or green card holder; and you are a full UK resident, so not UK 'non-dom' or other UK temporary resident. Right on both? If yes, then details below should apply.

What do you mean by "cancelled my 401K"? You took withdrawals? Partial/gradual, or did you take a single lump sum of the entire balance? The US/UK tax treaty defines how pension withdrawals are taxed, and there are two different ways. Which of the two applies depends on how you "cancelled" your 401K.

1) If you took 'regular' withdrawals, and you're not a US citizen etc., then treaty article 17(1) applies. Withdrawals are taxable only to the UK, as regular income. No US tax liability, so unless the payer applied any US tax withholding, you have no need to file any US tax return for these withdrawals. If the payer applied any US withholding, you will need to file a US 1040-NR to recover this withholding.

2) If you took a single 'lump sum', then treaty article 17(2) applies. The lump sum is taxable only to the US, and you will need to file a US 1040-NR tax return to square this with the IRS, taking into account any US tax withholding. No UK tax liability.

Now, I got from insurance company saying that I need to file a federal tax, Insurance company filed 1042S and send that to IRS prior march 15 -2021.
The IRS will (or rather, may -- US FATCA reciprocity is spotty) forward details from a 1042-S form to HMRC. Does this form indicate any US tax withholding, and which of the two cases above do you fall into?

Your insurance company does not know your specific tax situation, so their statement that you need to file a US federal tax return may be just boilerplate or CYA verbiage.

I have not lived in US since 2013 and consequently do not normal do any tax declarations at all in US.
Did you hold a US green card? If yes, did you properly surrender it using form I-407? Just checking that you're fully clear of the jackboot of the IRS.

The pension funds will be fully taxed in the country where I live.
The UK? Again, just double-checking that the above really applies to you.
 

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Discussion Starter · #4 ·
Hello JustLurking
Thanks for your answer, even though it may be for UK, I guess its similar for me as a Swede !!

No I am ot a UK citizen, I am a Swedish citizen, I worked as EXPAT for a special project under H1 visa
I did withdraw hole lump sum - your 2 is then valid
Vanguard did not with hold any taxes as in W8BEN application form, it said, Sweden is a treaty country to US and therefore, the pension should be taxed in Sweden.
You may be right, Vanguard does not know what I need to do so the statement to send in federal tax declare is probably CYA..
Sven
 

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Thanks for your answer, even though it may be for UK, I guess its similar for me as a Swede !!

No I am ot a UK citizen, I am a Swedish citizen, I worked as EXPAT for a special project under H1 visa
Earlier today the country flag against your name showed as GB. Did you change something around your account?

Anyway, for you then, the applicable treaty is here: Sweden - Tax Treaty Documents | Internal Revenue Service

I did withdraw hole lump sum - your 2 is then valid
The special 'lump sum' treatment is peculiar to the US/UK tax treaty. There is no similar clause in the US/Sweden treaty.

As I see it, then, article 19(1) applies. That is, your withdrawal is taxable to Sweden only, no matter whether it is part of a regular series or a 'lump sum' of the complete balance. There seems to be no apparent requirement (or use) for you to file an US 1040-NR return. I found nothing in the 2005 protocol that looks like it could change the base 1994 treaty.
 
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