Canadian 401k withdrawal

eliot · Post by **eliot** » Sun Mar 29, 2015 4:29 pm

Hello,

I'm a Canadian and live in Canada. I have a 1042-s for my 401k withdrawal in

2014 (small amount, less than $2000). This is my only US source income. The

tax withholding rate is 15% (I filled W8BEN). Does this tax withheld satisfy

my tax liability for US so I don't need to file my US tax return? I think 15%

already covers the 10% early withdrawal penalty. Also the amount I withdrew is

less than the deductions of exemptions.

Thank you.

nelsona · Post by **nelsona** » Sun Mar 29, 2015 4:48 pm

The 15% is only the income tax, and does not include the penalty. That said you do not have to file a tax return, the company should have withheld more.

Use the 15% tax as a credit on your Cdn return.

Otherwise, you could file a 1040NR and pay the penalty, and add the 10% penalty to your credit on Cdn return.

eliot · Post by **eliot** » Sun Mar 29, 2015 5:43 pm

Hi Nelsona,

Thank you for your reply.

If I file a 1040NR, since the amount I withdrew is very small, I will get zero income tax after deduction. Then I only need to pay 10% penalty. Is that right?

Thank you again.

nelsona · Post by **nelsona** » Sun Mar 29, 2015 9:51 pm

That is correct, but why bother? You owe more than this to Canada, so you are simply redistributing the tax.

Besides, it is debatable whether 401(k) is connected (gradual tax) or non-connected (flat treaty tax rate).