Disclaimer

This isn’t tax or investment advice – if you need those things speak to a professional.

This is simply a story of a scary thing that happened, and (thankfully) worked out in the end.

TL;DR

If you’re in the process of re-certifying your tax status, E*TRADE take this as ‘not presently certified’ (even if your past certification hasn’t expired), and reach into your account and grab 24% of any trade proceeds as Backup Withholding Tax. Ouch.

My money was returned after the re-certification completed, about a week later.

What happened…

I needed to sell some US stocks to get cash for another investment. I’ve had an E*TRADE account for over 15y (since Credit Suisse created one for me to hold their restricted stock unit [RSU] grants), and so that’s where the stocks were.

When I signed in I was asked to re-certify my tax status as a non US person, which results in a W-8BEN being generated for the US Internal Revenue Service (IRS). Keen to ensure that I’m on top of such matters I did this before my trade, which was probably mistake #1. If I’d just skipped then the following events might have gone very differently, as my existing W-8BEN status was valid until 31 Dec (they last for 3 years).

Things have changed

There were a couple of aspects to the re-certification process that I don’t recall from previous occasions:

1. I was asked why I had a US phone number on my account. This seems to be angled towards ‘if you have a US number then you must actually be a US person pretending to be a foreigner’, which is kind of ridiculous in a world of virtual telephony. I’ve had a US Google Voice number since 2010, and I often use it as my contact for US companies because they’re not always great at dealing with foreign contact details.
2. I had to upload a bank statement with my UK address on it.

Make sure to keep evidence

After doing the re-certification I didn’t bother to download the file it offered me, thinking that I could get that in my account later. Mistake #2 – I now had no evidence of completing the re-certification process.

Back to the business at hand

I did my trade, but wasn’t able to move my money straight away. The US details for my Wise multi currency account had changed, so I had to initiate the process of adding a new account for withdrawals. It took a few (business) days for the the verification transactions to show up.

We’ve taken your money

I woke up on Saturday morning to an email ‘Backup Withholding Report’ telling me that a sizable chunk had been debited from my account (at a couple of minutes after Friday midnight).

They’d taken 24%.

• Not 24% of my dividends – there hadn’t been any, that would have been $0.
• Not 24% of my capital gains – that would have been a few $s, but fairly trivial.
• 24% of my capital.

But, it was the weekend, so I had to wait for Monday (US time) to come around.

Meanwhile a trawl of the web didn’t turn up much solid information. This Reddit thread gave some glimmers of hope, but also raised the specter of the IRS holding my money for months-years, and lots of form filling to get it back.

The whole thing felt a bit like asset seizure, where my money was being accused of a (tax) crime, and would be held until I could prove its innocence.

I call support

Rob was very calm and helpful. He put me on hold to speak to the ‘tax and retirement’ team and came back to say that everything would be automatically refunded once my W8-BEN re-certification was complete. I asked why that was taking so long (as it used to be essentially instant) and he said that it was taking a few days to validate the uploaded docs.

Meanwhile…

I got a letter from E*TRADE ‘IMPORTANT: ACTION REQUIRED FOR YOUR TAX STATUS’ saying that my W-8 would expire on 31 Dec 2024, and if I didn’t re-certify:

your account may be subject to U.S. backup tax withholding of 24% on proceeds, dividends, and interest received in your account.

Oh, the irony :/

Also every time I signed into E*TRADE it was still nagging me to re-certify. It’s like I’d never completed the form (and there was no evidence that I had visible to me in my account).

Worked out in the end

About 6 days after the trade I got a notification that W-8BEN certification was complete. It was another couple of days before I got the ‘Withholding Reversal Report’ and the cash was back in my account and available for withdrawal.

Luckily I wasn’t in a huge hurry, and the various setbacks didn’t cause any particular problems (other than the worry and stress).

Could E*TRADE have done better?

I think so. At no point was I actually outside of W8 certification, so in my opinion they should never have taken anything from my account. It feels like a systems/process problem on their side that this happened at all.

Even if me starting the re-certification meant that they had to take money from my account, there could have been a much better explanation of why that was happening and what to expect. That would have saved me a bunch of worry. It would have saved them a support call.

It’s also telling of poor systems/process that the re-certification nag screens kept popping up even though I’d filled out the form.

What I’ll be doing differently if there’s a next time

• Don’t mix up admin work with trading. If I’d waited until the money was safely out of my account before starting re-certification I’d have seen a nag screen on each login, but no real ill effects.
• When offered the chance to download evidence take it. Don’t assume that you’ll be able to get to it later.

If Google’s brought you here

I’m sorry. It’s stressful. I hope things get straightened out. And I hope this might alleviate some of the panic. But do call support, your precise circumstances might be different; and also E*TRADE needs to feel some impact for how clumsily they seem to be handling this. Good luck…