When a non-U.S. resident inherits money from a U.S. estate, receives a 401(k) distribution, or is named as a beneficiary on a retirement account, U.S. tax rules still apply. In most cases, the payment cannot be released without proper tax withholding and reporting. This is where an Individual Taxpayer Identification Number (ITIN) becomes essential.
If you are a foreign beneficiary, understanding why the IRS requires an ITIN will help you avoid delays, incorrect withholding, or rejected distribution requests.
Why Foreign Beneficiaries Need an ITIN
1. U.S. Tax Withholding Rules Apply to Non-Residents
U.S. tax law requires payers to withhold 30% federal tax on certain distributions made to foreign persons.
This commonly applies to:
- 401(k) and other retirement plan distributions
- IRA distributions
- Inherited pension payments
- Payments from U.S. estates or trusts
- Lump-sum death benefits
- Brokerage distributions connected to inherited accounts
To correctly apply the withholding rules and report the payment to the IRS, the beneficiary must provide a valid U.S. tax identification number—typically an ITIN.
Scenarios Where Foreign Beneficiaries Need an ITIN
1. Inheriting a U.S. Retirement Account (401k/IRA)
If you inherit a 401(k) or IRA from a family member, the plan administrator must:
- Identify you as the beneficiary
- Apply mandatory U.S. withholding
- Report the distribution under your name on Form 1042-S
Without an ITIN, this reporting cannot be completed, and the distribution may be delayed or withheld at the full 30% rate—even if a tax treaty allows a lower rate.
2. Beneficiary of a U.S. Estate or Trust
Non-U.S. residents who inherit money from a U.S. estate often require an ITIN because:
- The estate must issue a tax reporting form
- Withholding may apply depending on the source of income
- The beneficiary may need to file a U.S. tax return to claim a refund
An ITIN ensures the estate or executor can legally distribute funds and meet reporting requirements.
3. Filing a U.S. Tax Return to Claim a Refund
In many cases, foreign beneficiaries have too much tax withheld, especially when treaty benefits apply.
To claim any refund, the beneficiary must file a Form 1040-NR.
You cannot file this return without an ITIN.
This situation is common for:
- 401(k) inherited lump-sum payments
- Inherited brokerage accounts
- Royalty or investment distributions from an estate
- Pension death benefits
- Excess 30% withholding
How to Apply for an ITIN as a Foreign Beneficiary
Foreign beneficiaries typically apply under: Form W7 – Reason Code “d” or “e” – Third-Party Reporting / Exception Category.
Your ITIN application should include:
- Completed Form W-7
- Proof of foreign status and identity (passport preferred)
- Supporting documents from the estate, executor, or plan administrator
Examples include:- Beneficiary distribution letter
- 401(k) plan statement
- Executor’s letter confirming your entitlement
- Draft Form 1042-S (if provided)
Providing complete documentation helps avoid rejections and speeds up processing.
Common Issues Foreign Beneficiaries Face
- Distribution delayed due to missing ITIN
- Full 30% withholding deducted instead of treaty rate
- Estate cannot complete reporting without a tax ID
- Refund claims were delayed because the ITIN was not applied for early
- Application rejected due to missing supporting documents
Working with an IRS-authorised Certified Acceptance Agent (CAA) reduces these risks and avoids sending your original passport to the IRS.
Final Thoughts
Foreign beneficiaries of U.S. estates, trusts, and retirement plans often need an ITIN before funds can be released or tax reporting can be completed. Whether you are inheriting a 401(k), receiving trust income, or claiming a refund of excess withholding, having a valid ITIN ensures compliance with IRS rules and prevents avoidable delays.
For professional assistance with the forms, treaty benefits, or U.S. tax compliance, contact our team today.
We are one of the IRS Enrolled Agent with many years of experience in US 1040/1040NR personal tax compliance reporting and Fatca Compliance FBAR Reporting, We are happy to assist our clients in a timely, efficient, and cost-effective way.
