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Interactive Options Course
Lesson 4 of 6
There are several different types of income subject to withholding. Obviously, the focus here is on investment income. However, a few other types will be mentioned.
• The statutory rate – meaning defined by the tax code – is 30%.
• Many US tax treaties lower this rate to 15%.
• If you live in an EU country that is the standard treaty rate. Tax treaties lower the rate to a different point – for example 10% for China.
• The US is not the only country withholding income sourced from within the country. For example, Canada, France and the Netherlands also have withholding on payments sourced within their countries.
IRS publication 901 contains an outline of many of the US tax treaties and is available for free at IRS.gov.
• Interest Income (with exceptions)
• Dividend Income
• Payments in lieu of interest or dividends
• Rents
• Royalties
• Gambling winnings – some things do stay in Las Vegas
• Trade or business income
This is not an all-inclusive list, but some of the more common types that investors – and perhaps vacationers have.
• Proceeds from securities transactions of US securities are not subject to withholding assuming that the seller has proper, valid US tax documentation in place. A current W-8 BEN must be on file with the custodian for no withholding to occur on proceeds.
• For US withholding, the withholding agent, usually a bank or a broker, pays the withheld tax to the IRS on a weekly basis.
• Once the tax is paid and reporting forms filed the withholding agent has no claim against the IRS to make corrections or get refunds.
• Tax is withheld when the payment is made. For example, a dividend is declared and then is payable into your account 10 days later. The tax is withheld when the dividend is credited to your account.
• Not all interest is subject to withholding. Investment interest is not subject to withholding. It is, however, subject to reporting. You will receive a US tax form showing any interest credited to your account annually. However, if the interest is investment interest then there will be no withholding.
• Interest earned on US bonds including US government bonds is investment interest. Interest on free cash in a brokerage account is also investment interest. Interest paid by banks is usually investment interest – but not always.
• Dividends and Payments in lieu are withheld on at 30%. If you live in a treaty country, then a lower rate will apply.
• Payments in lieu are withheld on as if they were the actual payment. So, dividend payments are withheld on interest. Payments in lieu are not – if they substitute for investment interest.
• Withholding on Rents is complex and can also be changed depending on the type of real estate and how structurally it is owned. It may be a corporation, a partnership, or owned by an individual.
• The withholding rate on Royalties is generally 30%. However, certain types of royalties differ and tax treaties may lower the rate.
• Gambling winnings are withheld at 30%. This is one area where, for an alien, filing a US tax return may net a refund. It all depends on how much you win.
• Trade or business income – that is income paid out from a US trade or business other than as a dividend; the rate of withholding changes if the US tax rates change.
Any adjustments in withholding because of re-classification from one income type or another generally can be done until reporting for the year is finalized. The final reporting by the withholding agent is due to the IRS in March for the previous year. Once reporting is complete the withholding agent is unable to receive a refund from the IRS.
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The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.
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Does IBKR return the tax withheld on distributions which are found to be Return on Capital? In most cases, the nature of the distribution (whether it’s a dividend or ROC) is not known until the 1099-DIV report is issued at the end of the year
Thank you for your question. For US dividends that are later reclassified as Return of Capital, IBKR does refund the tax that was initially withheld. However, these refunds typically occur at year-end after the final classification is confirmed on the 1099-DIV report.
For non-US securities, we generally do not return withholdings for reclassifications since these taxes were already withheld at the source.
Please note that in most cases, the true nature of distributions (whether dividend or Return of Capital) is only determined when tax forms are issued at year-end. Please note that IBKR does not provide tax advice. If you have any further questions on this, please consult a tax professional who specializes in your region regarding specific questions. You also may find our webpage helpful: https://spr.ly/TaxInfocampus
We hope this helps!
Hi i live in HK but as an Australian claim the 15% witholding on US dividends. Can you do that rather than the 30% default?
Hello, thank you for reaching out. Generally, tax is withheld at a rate of 30% on payments of US source stock dividends and substitute payments in lieu. The rate of withholding may be reduced if there is a tax treaty between your country of tax residence and the US. Please note that we cannot provide tax advice, but you may find this webpage helpful: https://spr.ly/TaxInfocampus
Please consult a tax professional who specializes in your region regarding specific questions
Do you refund qualified interest income paid as dividends from US shares at the end of each tax year for foreign investors?
Hello, thank you for reaching out. Generally, tax is withheld at a rate of 30% on payments of US source stock dividends and substitute payments in lieu. The rate of withholding may be reduced if there is a tax treaty between your country of tax residence and the US. You may find this webpage helpful: https://spr.ly/TaxInfocampus
Please note that IBKR does not provide tax advice. Please consult a tax professional who specializes in your region regarding specific questions.
Greetings, I am a Macau tax resident (non-U.S. resident in this case), and there is no tax treaty between Macau and the US as i known. I would like to directly invest in 10-year U.S. Treasury bonds through my IBKR account. Q1: Will the interest income and capital gains from buying and selling these Treasury bonds be subject to the 30% withholding tax? Q2: If the 30% withholding tax is levied on the Treasury bond interest due to incorrect tax information (such as an invalid W-8 form), can this charge be refunded after I update the correct tax information? Q3: Following up on Question 2, how long does it typically take for the refund to be processed, and do I need to file an additional tax refund application form? Thanks！
Hello, thank you for reaching out. Virtually every country, however, imposes withholding taxes on dividends paid by local corporations to non-residents. The default rate is 30% although it may be lower if an international tax treaty involving your country exists. Please review this FAQ for more information: https://www.interactivebrokers.com/faq?id=25487889
Please note that we cannot provide tax advice, but you may find this webpage helpful: https://spr.ly/TaxInfocampus
Please consult a tax professional who specializes in your region regarding specific questions.
Is Australia is a treaty country ? Because the MSTY dividend I got seems had 30% withheld by IBKR this screws up div reinvestment and how do I get down to 15% also the tax year of USA and Aus is diff so how does it affect Australian account ? Any ideas ?
Hello, thank you for reaching out. For a non-US citizen, the withholding rate applied to a distribution depends on a number of different factors such as the entity through which your trade is booked, the source of the income and your tax residence (including whether you are eligible for the benefits of a double tax treaty between the United States and your country of tax residence). Please view this FAQ for more information: https://www.interactivebrokers.com/faq?id=52477332
IBKR does not provide any tax advice. Please consult with a tax advisor for further guidance on how to seek relief for any tax withheld. We hope this information is helpful!
Hi For SGOV, the distributions have withholding tax deducted notwithstanding the distributions are made from US T Bill holdings which are exempt from withholding tax. When are withholding tax deductions generally refunded?
Hello PZ, thank you for asking. Distributions from certain ETFs or REITs, such as SGOV, are initially classified as ordinary dividends and subject to U.S. withholding tax at the time of payment—even if the underlying holdings (like U.S. Treasury Bills) are exempt from withholding tax.
Each year, the security issuer provides IBKR with the final tax classification of prior-year distributions (e.g., ordinary dividend, interest, return of capital, capital gain). Based on this information, IBKR reclassifies those distributions and adjusts any withholding tax that was incorrectly applied.
For distributions attributed to tax year 2025, this reclassification and adjustment will occur between January and March 2026. You’ll see these adjustments reflected in your Year-to-Date Activity Statement, and the final classification for each distribution will appear in your Dividend Report. For more information on how to create a detailed custom report such as the Dividend Report: https://www.ibkrguides.com/portfolioanalyst/performanceandstatements/pa_reportpages.htm
This resource may be helpful: https://www.interactivebrokers.com/en/support/tax-nonus-reports.php
We hope this helps!
Hi, for withholding tax credits submitted to IRS by IBKR (under Form 1042-S), does IBKR process and refund the withholding tax? Or does the user need to lodge the claim refund themselves?
Hello, thank you for reaching out. Form 1042S reports all US tax withheld from the type of income being reported, if any tax was refunded or withheld by another agent than the reporter. Remember that once the 1042S – is filed and reported to the US government – in March – the withholding agents cannot obtain refunds from the IRS. Please review this IBKR Campus course for more information.
Clients should consult their tax advisor on how to claim a refund or tax credit. We hope this helps!
am from Macedonia, a have stock from Slovenia, how to pay tax for slovenia stock ( IBKR ) already took 30% and the rest of 70% had to pay, where to pay ?
Hi, thank you for reaching out. To get historical and current tax forms, please review this FAQ: https://www.interactivebrokers.com/faq?id=30115238
We hope this information is helpful!
I am a UK resident tax payer for 2024/25 and just (17 Dec 2025) submitted W-8BEN. Just wonder if my submission can cover the period 6 Apr 2024 to 5 Apr 2025?
Hello, thank you for reaching out. The Form W-8 remains in effect for the period beginning on the date it is signed and ending on the last day of the third succeeding calendar year. IBKR will notify clients in advance when a Form W-8 is about to expire and will present them with the online Tax Form upon login to Client Portal. https://www.interactivebrokers.com/faq?id=27276615
We hope this helps answer your question!
Hello, I am an SG PR looking to invest in MAG7 US-issued Corporate Bonds via my IBKR account, as a means of deriving steady passive coupon income. I have the Form W-8 in place and verified through IBKR — will those bond coupons be subject to Withholding Tax?
Hi, thank you for asking. Yes, IBKR does withhold taxes on certain interest earned. https://www.interactivebrokers.com/faq?id=73513266
Please note that IBKR does not provide tax advice. https://spr.ly/TaxInfocampus
If you have any further questions on this, please consult a tax professional who specializes in your region regarding specific questions.
Hi! I’m a Polish Citizen living and paying all taxes in Ireland. What do I need to do to not pay 30% tax on my dividends from US stocks? How to get refund of overpaid tax for 2025? Thanks! Tomas
Hello, thank you for reaching out. Dividends paid on U.S. stocks will be subject to withholding taxes for non-residents. A completed W8 form will allow for a reduced tax rate if a treaty exists between the United States and the holder’s country of taxation; however a valid W8 only allows for a reduction in the tax rate not an elimination of the tax entirely. Please note:
Dividends paid on U.S. ADR shares are generally withheld at source and will not be eligible for a reduced tax rate.
Clients should consult their tax advisor on how to claim a refund or tax credit.
Please view this FAQ for more information: https://www.interactivebrokers.com/faq?id=32647192
We hope this helps!
Hi! I currently live in Costa Rica. Does Interactive Brokers automatically deduct the 30% withholding on US dividends each time a stock pays a dividend? Also, do I have to provide/submit the W-8 Form? Considering the fact that I´m from Costa Rica? Thanks!
Hi David, thank you for reaching out. IRS Form W-8 is used to certify your status as a non-U.S. taxpayer. It is also used to claim reduced tax withholding on dividends and other income paid with respect to U.S. securities. Without proper documentation, brokers may be required to impose exceptional withholding tax on transactions occurring in the account and/or report the account as non-compliant to tax authorities.
Find a detailed description on how to Update Tax Forms in the Client Portal Users’ Guide. https://www.ibkrguides.com/clientportal/updatetaxform.htm
We hope this helps!
Thanks! Lastly, could you please confirm if Interactive Brokers automatically deduct the 30% withholding on US dividends each time a stock pays a dividend?
Hi David, thank you for asking. In the event you hold a position over the ex-dividend date, your dividend may be subject to withholding tax.
Depending on which entity of Interactive Brokers your account is opened with, and your country of legal residence, IBKR might act as a withholding agent and apply the applicable treaty rates, or the tax might be applied by our clearing agent prior to receipt. In such a case, holders might be unable to take advantage of any country specific rates which may exist.
Clients should consult with a tax advisor for assistance in making a claim for a tax refund on a dividend. Please view this FAQ for more information:https://www.interactivebrokers.com/faq?id=41559348
We hope this helps!
Hi! As a tax resident in Bulgaria, can I submit Form W-8BEN to switch to the 15% (conventional rate) on US dividends? Regards
Hi Mike, thank you for reaching out. Dividends paid on U.S. stocks will be subject to withholding taxes for non-residents. A completed W8 form will allow for a reduced tax rate if a treaty exists between the United States and the holder’s country of taxation; however a valid W8 only allows for a reduction in the tax rate not an elimination of the tax entirely. To update your W-8BEN form, please follow the instructions provided in this FAQ: https://www.interactivebrokers.com/faq?id=32666329
We hope this helps!
What Is the IBKR opinion ?
Hi there, I set up my IBKR account based in Ireland a few weeks ago and I completed the W-8BEN form so that I can be taxed accordingly. I have just received the first dividend payments and I have seen that I have been held 30% despite compliting the W-8BEN form. I am from Spain so they should apply the treaty and tax me at 15% instead of 30%. Why is this happening? Is there any steps that I missed? Is there a way for me to contact or get in touch with IBKR so that they make sure that my info is up-tp-date so that going forward they use the right tax rate? Thanks in advance, Dani
Hi, exchange traded debt (babybond) like TBB and PRH, that listed on nyse, for non us resident, is it qualified to be 0% WHT? How to know the interest income from the babybobd in the market is subjected to tax or not?