Anian

I accidentally asked for 17 deductions on my W-4 the first time (I have no idea how I came up with that number, the calculations showed the right number, which I then crossed out and wrote 17 for some reason!). I still got docked federal taxes.

adrian_reynolds

I need to preface this reply by saying I am not a tax accountant; however, my US personal tax knowledge was adequate to gain a very high passing score on the tax portion of the CPA exam and I have been working as a CPA for several years now... I'll also try to ignore the unfriendly tone in your response. I'm only replying now because I feel the information you provided is inaccurate and / or careless.

What I said, and I stand by this is that he should not withhold taxes owed for the 2011 fiscal year to compensate for the amount he is owed by the IRS relating to the 2010 fiscal year--unless he specifically opted to apply a 2010 refund to his 2011 tax liability. What I also said, which is accurate, is that if he knows (or any US taxpayer knows) that his 2011 tax liability will be $0 at year end; i.e., he will get a full refund on any tax paid... then he should absolutely claim the maximum number of deductions (you corrected with dependents and actually the correct term is exemptions or allowances--check the W-4.) For example, I claim 2 dependents on my 1040, but I claim 6 exemptions on my W-4 as I have itemized deductions that reduce my tax liability.

The best advice I can give someone is to never get a refund--any refund received at year end is simply an interest-free loan that you provide to the US Government. Now I believe that is wiser than getting a refund. Please read a post thoroughly before responding with incorrect information and careless advice. Please feel free to refute this information if a) you can cite IRS code or b) you can prove you have a CPA and that your background is more than a casual observer on this topic.

Giantaxe

You do realize that you are using the verb to withhold in the exact opposite sense to that defined by the federal tax code? And that the confusion created by that contrary usage is what Rete was pulling you up on?

Steve_

I don't think your tax situation is simple because you were only in the US for a partial year. Likely you are a dual-status taxpayer, this is probably where the hang up with the IRS is because it has been passed to the IRS division in PA that deals with them. You should read IRS publication 519.

I don't think Turbotax can do dual-status returns and you should manually do your return for your first tax year. (In fact imv you should do it with a pen and paper always and if it's too complex you should get a good accountant). Alternatively given your short time in the US last year you could file as non-resident for the whole year (unless you're an LPR) and only pay tax on your US-source income, however you will still be tax resident abroad if you do that.

Having such a high refund for such a small amount of time worked doesn't sound right to me, the personal exemption has to be prorated on a dual-status return, so you've claimed too much back.

The IRS has no doubt cottoned onto this and you will get a letter eventually explaining this - my suggestion would be to beat them to the punch and file an adjustment with the correct information.

Sally Redux

That's the bit I don't understand about Harry's situation.

Rete

Wonder if HTS and his spouse claimed an earned income credit because of the low "earning wage"? Since I've married a "foreigner" I have not done my own taxes but let our accountant handle the return.

Steve_

As I recall the IRS have an equation they use for refunds, so if you claim back more than x amount (a few thousand) or the ratio of the amount earned to the amount claimed back does work out correctly (there is a maximum possible ratio based on the tax credits that can be claimed) it gets kicked back to auditing. Which may be where it is at the moment, or the auditor has figured out it should be dual-status and has passed it on to PA.

Rather than sit around waiting for the letter, because you'll get hit with interest, figure out the mistake, file an adjustment and get it sorted is the best solution.

HarryTheSpider

Thanks all for the useful additional info over the last few days.

Yup -we were in the UK up until 8 Nov. TurboTax does allow you to indicate you were out of the country and not resident for tax purposes during that time.

Also, the refund claimed is the amount of withholding tax paid to the IRS from 8 Nov until 31 Dec. The entire amount is claimed as the total income received was less than the amount at which tax starts to be paid.

We filed on 16 Feb.

It seems the best thing to do here is go down in person and find out what is happening...!!

Thanks again - we'll do that and I'll report back!

Cheers

HTS

HarryTheSpider

Hi folks - an update...

I got myself over to the local IRS office in Mesa, about 30 min drive. I got there early and was first in the line...

I spoke with a very helpful human being. What we were able to ascertain was this...

My taxes were filed OK. It's not clear why they were tagged for further investigation but it's probably because of being a first time filing AND requesting a fairly hefty refund...

The refund was released for payment, but around that time I wrote to the department handling my case, in Austin, Tx, and around the same time the payment was stopped again - he (IRS man today) didn't say it was due to me writing, but he strongly intimated that was the case...

Anyway, to cut a long story short, I'm probably owed interest on the refund, and now that the 'system' is awake to this, it is THAT which will speed things along.

He told me to expect resolution in the next '30 days', and failing that, I could file with the Advocacy Service.

I told him I had filed with the Advocacy Service already (local office) and THEY were in violation of their stated service levels... he smiled and said that I should come back in 30 days if things hadn't officially resolved....

I'll post when I do get final resolution.

The one thing I did pick up on, thanks to the suggestions on this thread, was about residency. NOTE THIS IS NOT TAX ADVICE, SIMPLY WHAT MY INTERPRETATION IS!!! (Jeez, these disclaimers are a pain - is it really so litigious and people so 'dumb' that they'd blame something on you like this?!)

If you are filing your first tax return, and not a USC etc etc etc, you will not meet the requirements of the Substantial Presence Test (SPT)...

HOWEVER... there is a special case, for first year filing, where you can state that you WILL meet it in the future and want to file on that basis. To do this you also have to file a 1040X and note this is what you want to do, and ideally file it with your tax return, which means NOT FILING ELECTRONICALLY.

The IRS man today suggested that if you're not due a refund when you do your tax return, you could simply do a normal electronic filing and if there is an issue, the IRS will get to you 'eventually' - it's only an issue for you as tax payer if you're after that (sizeable) refund...

So next year we won't likely be due a refund. I'm not changing witholding tax payments as originally queried at the start of this thread, because it would cause other issues etc... So I'll file electronically using TurboTax.

The CPA I contacted for help didn't respond to my initial contact - I'd have been prepared to pay a few hundred $ to resolve this, and have him do my taxes each year - but his lack of response pushed me to research a bit more on my own, with the help of you good folks, and now he can go and swivel!

From a slightly happier HTS

Have a good day.

Cheers

HTS

Jscl

Thanks for getting back to us with what happened. The first year tax return, particularly if it's only after being here a few months, is always going to be an odd one, so it's wise for people to read the code yourself (if you're brave) or pay someone. Subsequent years should be reasonably straightforward if you don't have any money presence remaining in the UK, if you do then there are more forms to consider, and you'll have to be extra careful if you opt for something like Turbotax.

HarryTheSpider

Thanks Jscl

I've just discovered that the restricted stock units I have vesting every quarter will be partly paid in the UK because that's where I was (working for the UK legal entity, not the US one) when they were given to me... this will continue very quarter until the middle of 2014... might have to pay a CPA after all... Darn it!

The nice thing is that the UK people have just discovered it and tell me I'm owed a nice few quid going back a few quarters since we moved here nearly a year ago...

HarryTheSpider

I was skyping with my mum yesterday morning, and she asked me about the IRS refund. I told here it had only been 3 weeks since I'd been to the IRS office, and I'd wait another 10 days before getting back on their case.

After we hung up, I logged in to my bank account - it being pay day and all - and I was amazed to see the IRS had paid up...

... with interest - about $70 in fact!

Sweet.

Now all we have to deal with is the $500 deductible from the earlier car accident - other party's insurance is saying it will only pay half. It's clear from the disposition of the vehicles and where the damage is that the other party is at fault - negligent or wilful - their choice...

So, we'll get there in the end.

Cheers

HTS

Steve_

If you're a new taxpayer in the US you should read IRS publication 519 as I mentioned above. They base the examples in the publication on a UK taxpayer who has moved to the US.

I don't think filing to be considered resident for the whole tax year so you can get a bigger refund makes sense, because the income you earned earlier in the year before you moved to the US then becomes subject to US taxes. The logical thing to do is to file as a dual-status taxpayer as explained in 519. Future years you simply file a 1040 like everyone else does, but there can be situations where remaining non-resident makes sense (e.g. short-term assignment), that requires filing an 8833 to claim a tax treaty exemption if you're in the US for more than 183 days.

The local IRS offices are not familiar with dual-status returns imx. If you need help you should contact the specialist dept. in PA, the numbers are in 519. Back in ye olde days before the internet I went to an IRS seminar on this subject and they told us never to use the standard help numbers or talk to the people at the federal building as they would have no clue.