Beginning in January 2013, the IRS will require that dividends to non-US citizens be reported by credit unions in an effort to reduce tax evasion. To assist our credit unions in complying with this regulation, I recommend that they:
- Create a savings account that does not pay dividends and freezes the regular share account from deposits and withdrawals at the par value of the credit union
- Create a non-US-citizen designation with a restriction that these members cannot open a CD or any interest-bearing accounts
Credit unions would find non-interest-bearing accounts most useful for the following types of members:
- Seasonal laborers who simply need a place to cash a check and potentially wire money to their home outside the US
- Foreign students who need an account to have money wired into and maybe have a debit card attached to it
- Undocumented aliens trying to establish their presence in the US
Non-interest-bearing accounts would also simplify credit union procedures in the case of:
- Deceased members, for whom credit unions cannot report dividends
- Members for whom credit union staff use a temporary alias number at account opening because the member doesn’t know their social security number
While my recommendation to create a non-interest-bearing accounts is supported by our core compliance group, some credit union compliance officers fear that prohibiting non-US citizens from holding interest-bearing accounts may be seen as discriminatory in the case of credit unions whose non-US-citizen members are primarily comprised of only one ethnic group. Do you think that creating a non-interest-bearing account for certain members could be seen as discriminatory? Please provide us with your feedback.
We’d also like your feedback on software ideas. Since this new requirement to report dividends on non-US citizens will require changes to the CU*BASE software, we’d like your input so that our changes to the software are catered to your needs.
Please provide your feedback by clicking the red Comments link below.
Maybe just create a code on the account that shows non-US citizens – and allow credit unions to report the dividends. I do believe it could be considered discriminatory with us also as our non US citizens are seasonal laborers from one ethnic group. Create the new tax form for reporting and allow us to report.
I would think that to deny non-US citizens the same rights as any other member of the credit union would be discriminatory. If we accept them as members they need to have all the same rights as any other member. Could we code them like we do organizational, DBA, etc?
We have required potential members to obtain an I-TIN. We accept the Matricular Card issued by the Consular (we hope all this keeps us out of the money-laundering business):
The Matrícula Consular de Alta Seguridad (MCAS) (Consular Identification Card) is an identification card issued by the Government of Mexico through its consulate offices to Mexican nationals residing outside of Mexico.[1] Also known as the Mexican CID card, it has been issued since 1871.[2] The issue of the card has no bearing on immigration status in the foreign country they are residing in.[3] The purpose of the card is to demonstrate that the bearer is a Mexican national living outside of Mexico. It includes a Government of Mexico issued ID number and bears a photograph and address outside of Mexico of the Mexican National to whom it is issued.
Working on a University campus, we have many foreign students as well as faculty. We will have to figure out (quickly) if we want to pay dividends on non-citizen accounts. It just seems so sweeping to say — we don’t pay dividends to non-citizens.
In addition, we have people who for religeous reasons are not allowed to receive interest on their accounts. We have their accounts coded to not pay dividends.
My understanding is that all of our accounts require a Social Security Number or TIN number, regardless of their citizenship status. This is required for tax reporting purposes, back-up withholding, etc. I would think it would be considered discriminatory. Also, what would be the Truth-in-Savings or other disclosure requirements for these individuals should we decide they can only have a non-interest bearing acct?
We require all new member have a EIN, SSN, or ITIN. We don’t discriminate on who gets paid dividends. All members in good standing get paid dividends.
To comply with the new requlation, we would prefer to have a check box for citizenship to help identify non-citizens as many of our members have SSN or EIN but are not US citizens. It might be easy to tell programatically if they have an ITIN so a warning or report for that type of number if we don’t check non-US citizen would also be very helpful as a double check.
We have a few foreign members. Most of them are exchange students or relatives of our members. We do have them coded as foreign citizens and they have not reported on our 1099-INT forms even though they HAVE received dividends. I do have one question. Would it be possible to create and file the 1042-S and 1042 summary page just like we do 1099-INT for us citizens with the 1096 summary page? Would this be programmable? Could we work with the vendor who prints the other yearly tax forms to produce? Would it be just like any other IRS form?
I think each CU will handle this differently so the system will need to be able to handle all scenarios. I think by having the ability to designate a member as a citizen or not would allow for you to program the system to report the dividends if that CU choose to pay dividend. The non-interest bearing account is an option for those CU’s that don’t want to pay dividends.
We report dividends whether the member is a US citizen or not, because it’s based on membership, not citizenship. We do not discriminate between members. All members must have an SSN or EIN to open an account.
We would never think to not pay a member dividends just because thery were not a US Citizen (unless it become unlawful to pay dividends). I’m assuming based on the comments or lack of specific information otherwise, that currently CU*Base does not include non US citizens on 1099 reporting based on whether or not the foriegn citizen box is checked. Is a different form/report going to be required to report these individuals? How different is it going to be from the current form/report. On the surface it seems like a pretty easy programming change/addition.