I tried getting information from IBKR on how this would be treated regarding US federal income taxes for a nonresident alien receiving this interest. It was not particularly enlightening. You would think they would be able to tell me, as withholding agents...
Maybe somebody here got a little deposit interest for 2017-2020 from IBKR can tell me what happened?
IBKR told me:
- It is not portfolio interest (which would be exempt from US taxation for all NRA).
- It is income code 29 (Deposit Interest), which is not the type of interest covered by the tax treaty tables. The tax treaty tables list the withholding rates for income code 01, Interest paid by U.S. obligors-general.
- Regarding withholding, I was both told that IBKR never withholds taxes on interest and that it is subject to withholding. Nice.
So right now I assume that:
- The broker deposit interest is not generally US income tax exempt.
- Tax treaties can still reduce or exempt taxation.
- You have to read the actual treaty, not the tax treaty tables, to figure it out.
- IBKR withholds 30% income taxes. File 1040-NR to get the money back? Do I have explicitly take a treaty position via form 8833?
- IBKR withholds no income taxes, but does not claim a treaty exemption on form 1042-S. The withheld tax would be correct, but for the wrong reason. Does that give me an obligation to file a 1040-NR?
- IBKR withholds no income taxes and lists exemption code 04 (Exempt under tax treaty) on the 1042-S. Assuming nothing else makes me file a 1040-NR, this looks like there would be no requirement for me to file. The withholding was correct and exempted correctly.