Tax treatment of IB Stock Yield Enhancement Program

Hi,

I started using Interactive Brokers’ Stock Yield Enhancement Program 2 years ago.
Last year I declared the Payments-in-lieu of dividends that I received as ordinary dividends in my DA-1 tax statement but it was rejected, so I could not get the U.S. withholding tax back.

Has anyone managed to get some tax returns coming from payments-in-lieu of dividends through IB’s Stock Yield Enhancement Program?

Regards,
albdac

1 Like

Nope, withholding taxes were also rejected for me in Zug :frowning:

Mine was in Zurich. I find it unfair to get the tax withheld but no way of getting it back. Thanks for your reply.

Was that with the 1042-s? I’m fairly sure the tax treaty should apply, but maybe you’d need to pay professionals to convince them, which might cost more in the end.

I submitted the DA-1 form.
I contacted the cantonal tax authority and they were really helpful explaining their calculations. Unfortunately they said: “We can consider only ordinary dividends with withholding tax”.

From a legal point of view, which is the only one that matters, you never paid the tax.

I assume you didn’t declare those as dividends, but other type of income subjected to withholding (as it is)? Anyway probably not cost effective to try to reclaim at this point.

I tried to declare them as dividends but they were rejected.
Only the ordinary dividends were accepted.
At the end I think it was considered ordinary income.

Well, the tax is still deducted from the payment, so who pays it “from a legal point of view”? The broker? In that case, it’s the same for all tax deductions for all dividends you get, so I don’t understand your point.

It’s true that this situation is a bit messy for tax reasons. There is a full article on tax implications (albeit with an American standpoint) available on taxprofessionals.com

I’d say if it shows up on a 1042-S, I don’t see how it can’t be declared on DA-1, but you need to be ready to argue with the tax folks with the DTA in hand, potentially up to going to court, those things cost money, often more than what you’ll recoup.

That said if you did declare it same as dividend, e.g. associated to your holding of that share, then I understand why they would not be happy about it.

Thanks for sharing that article. I was not aware that it was also an issue for Americans too.

Probably a judge would give us the reason but definitely not worth it for a couple of hundred.
I wonder is there is some precedent already that we could quote to the authorities.

this is interesting - I simply put in the DA-1 form the amount of stock I have, and the dividend is calcualted automatically, and then I put the 15% taxes. The tax office never sees the IB Stock Yield Enhancement Program. I simply give a screenshot of the dividend section of the IB report and it seems to work ok.

Interesting indeed. But those dividends also include the payment-in-lieu then? I’m curious to see which specific report from IB you sent them. Because I have the feeling that the IB report shows a different number than the DA-1.

No you are right. In 2020 I started the program but very late in December and of course the dividend were all “natural one” so I had no “payment in lieu”.

I simply used to send the yearly activity report as pdf. This year I see some “payment in lieu of” so let’s see if it flies or not. Maybe I can attach only the trade report of the ETF transaction and omit the dividend report. See if they complain.

Let us know how that goes!

in any case this topic was timely. 2021 was the first year completely in the SYEP and it generated 10 usd of interest, mostly because I only have VTI and VXUS which I guess are not that in demand/ there is a large supply.
10 USD out of 200k-270k of ETFs. It seems low risk, but your stuff is loaned out and I am having trouble following all their terminology, so I am most probably stopping it in 2022. The 10 USD are not worth the risk IMO.

In my case, for 2021 I had some individual stocks that were heavily shorted so it was around 260 chf with a smaller portfolio than yours. But it was probably a one time effect. I’ll have to do some calculations and see if it was worth it. The formula to calculate the withholding taxes returns is not the easiest one.