Understanding US-Korea Tax Treaty for Retiree's Interest Income

The US-Korea tax treaty does indeed provide some relief from the standard 30% withholding rate that typically applies to non-residents. Article 13 of the treaty specifically addresses interest income and generally limits the tax rate to 12% for most types of interest. Your father's situation is actually quite common. When a permanent resident alien gives up their US residency and moves back to their home country, they typically need to file Form 1040-NR and may qualify for reduced withholding rates under applicable tax treaties. To claim the treaty benefits, your father would need to file Form 1040-NR and include Form 8833 (Treaty-Based Return Position Disclosure) to explicitly claim the reduced rate under the US-Korea treaty. Also, if he hasn't already done so, he should file Form I-407 to formally abandon his permanent resident status.

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Something important to consider with your father's situation is whether he properly terminated his US tax residency status. A green card holder is considered a US tax resident unless they properly terminate their status. Did he file Form 8854 (Expatriation Statement) when he left? If he was a long-term permanent resident (held green card for 8 out of the last 15 years), he might be considered a "covered expatriate" which could trigger additional tax consequences like the exit tax. This is separate from the treaty benefits question but could significantly impact his overall tax situation.

Just a heads up - I lived in Korea for 12 years and moved back to the US last year. Korean banks will also want your father to file a W-8BEN with them to claim the reduced treaty rate on any interest earned from Korean accounts. Otherwise, Korean financial institutions will withhold at their domestic rate (around 15.4% currently). It's a two-way street with these treaties - he needs to claim the treaty benefits with BOTH the US and Korean tax authorities. Also, make sure he's reporting any Korean bank accounts on FBAR if the aggregate total exceeds $10,000 at any point during the year. The penalties for missing that are brutal!

This is a complex situation that involves multiple layers of US tax compliance. Based on what you've described, your father needs to address several critical issues beyond just the treaty benefits: 1. **Formal expatriation process**: Since he's been a green card holder for 30 years, he needs to file Form I-407 to abandon permanent resident status and Form 8854 for expatriation tax purposes. The exit tax provisions could apply given his long-term resident status. 2. **Treaty benefits**: Yes, Article 13 of the US-Korea tax treaty does provide for a reduced 12% withholding rate on interest income instead of the standard 30%. He'll need to file Form 1040-NR and Form 8833 to claim these benefits. 3. **Korean tax obligations**: Don't forget he may also have Korean tax filing requirements as a returning resident. Korea generally taxes worldwide income for residents. 4. **FBAR reporting**: If he maintains US bank accounts or investments totaling over $10,000, he'll need to file FBAR (FinCEN Form 114) annually. Given the complexity and potential penalties involved (especially with expatriation requirements), I'd strongly recommend consulting with a tax professional who specializes in international tax and expatriation before filing anything. The costs of professional help will likely be far less than potential penalties for non-compliance.