In my last post on effectively connected 401(k) payments, I complained that there was no clear user-facing documentation from the IRS on the split between contributions (ECI) and plan earnings (non-ECI).
The 2020 revision of Publication 519 fixed that. The key quote is on page 19:
“If you performed personal services in the United States after 1986, and in a later tax year, you receive pension or retirement distributions attributable to these services when you are a nonresident alien, such distributions are effectively connected income to the extent attributable to contributions.”
(Emphasis added.)
This confirms the analysis in my ECI post, which was pieced together from obscure technical rulings. The final six words greatly improve upon the sentence as it appeared in the 2019 revision of Publication 519:
“If you were a nonresident alien engaged in a U.S. trade or business after 1986 because you performed personal services in the United States, and you later receive a pension or retirement pay attributable to these services, such payments are effectively connected income in each year you receive them.”
This was actively misleading as it implied that the entire payment—and not just the contributions portion—would be effectively connected.
It’s as if the IRS reads my blog. 🙂 [1]The 2020 Pub. 519 is marked “Feb 5, 2021”. I researched and drafted my ECI post during Dec and Jan, but didn’t hit Publish until Mar 7. So, the IRS probably doesn’t read my blog.
| ↑1 | The 2020 Pub. 519 is marked “Feb 5, 2021”. I researched and drafted my ECI post during Dec and Jan, but didn’t hit Publish until Mar 7. So, the IRS probably doesn’t read my blog. |
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