How to report Form 1042-S Code 15 early draw of retirement

[registeringsucks]

Hi,

I have a client who worked in the US and decided to move back to her home country Germany in July 2020. She cashed out her retirement early but they gave her 1042-S instead of 1099-R. There is Fed W/H on box 7a and box 10. 

I went to 58.2 Foreign withholding and inputed all the information from the Form 1042-S my client received. 

But when I looked at the Tax Summary there is nothing being reported on the early draw or withholding.  I've read that I should do a Substitute 1099-R.

However Charles Schwab informed my client they have to issue her 1042-S since she lives overseas even though the retirement is from her US souce job.

Please advise on how I should report the early retirement draw and the Fed W/H from a Form 1042-S. 

Thank you

Len

[sjrcpa]

Is she a US Citizen, a Resident Alien, or a Nonresident Alien?

[registeringsucks]

Hi Sjrcpa

I contacted them but have not replied due to the time difference. 

[registeringsucks · Accepted solution]

She's US green card holder. She was employed in a US company till July 2020, then moved back home to Germany.

Per Charles Schwab they told her because  she cashed out the 401k at the end of December 2020 while already being in Germany, so that's the reason why Charles Schwab had to treat her like a "foreigner" in the sense of being outside the US. Technically she's a US Green Card holder without having
residency in the US anymore. 

Aside from the 1042-S, she was still working for that same company till July 2020. The retirement contribution is with the same US employer. 

Thanks for all your help.

[sjrcpa]

I think Charles Schwab is full of 💩. But you have to play the hand you're dealt.

Your client files a 1040. They don't easily accommodate 1042-S. Report the income and withholding as if it was on a 1099-R. Attach the 1042-S and an explanation. Expect correspondence from IRS about the withholding. You might have to paper file.

[registeringsucks]

Thank you. I will just file a substitute 1099R. I knew they were full of it. They wouldn't even let her withdraw until after she quit  her job.  

So just to confirm they should have given her a 1099R since she has a green card and was still working as a W2 until July 2020 and she should not be a 1040-NR.

Thank you again.

[sjrcpa]

Correct. A green card holder (Resident Alien) files a 1040 and reports their worldwide income on it.

[registeringsucks]

They didn't do a withholding on the CA state because Charles Schwab gave them form 1040-S. So I inputed on Lacerte US income but should they also be taxed on this in CA? Even though they took out the money on December 2020 while living in Germany, long after they have moved out of CA? Move out date was July 2020. 

[sjrcpa]

If you're filing a part year CA return this should not be CA income.

[registeringsucks]

Thank you!!!!!