Social security taxes paid to US

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henrimb
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Social security taxes paid to US

Post by henrimb »

I'm a US citizen resident in Canada. In 2014, I had less than 10,000 in US wages (on W-2, after deducting all 401k contributions) and I paid social security taxes of about 2,000. I understand I cannot get a FTC in Canada for the taxes paid to US (both income taxes and SS taxes) since US wages are less than 10,000, but can resource the wages to Canada. However, this will not give me any credit for the SS taxes paid in the US. Is there any way to get credit for the SS taxes paid to the US? Thanks very much.
nelsona
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Post by nelsona »

Realize tha the reason for not getting a tax credit on the US INCOME TAX is because, you only owedthat US tax because you are a US citizen. Cdn citizens in your situation would file a 1040NR and claim the treaty provision to exclude the wages (under $10K in USD), and thus pay no tax.

But the SS taxes you paid would indeed also be paid by a Cdn citizen, so CRA would have no basis to deny your FTC for those taxes.
So, on your Cdn retunr, claim the SS taxes as FTC, and on your 1040, claim the US taxes attributed to those wages on a re-sourced 1116.
The result should be (give or take the vageries of FTC calculations) you pay Cdn income tax on the wages, and pay SS to US, and no income tax.
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nelsona
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Post by nelsona »

I would add this however, that the wages you earned would be defined as those earned WITHOUT consideration of 401(K) or other deductions. Same would apply to what you report in canada: you must add back the 401(K) contributions to come up with your "wages". The 401(k) deduction is applied further down on the Cdn retunr, along with filing teh correct 401(k) form.

If as a result, your wages exceed 10K, then the US tax you come up with on your 1040 related to this income is fully eligible as a tax credit on your Cdn retunr, along with the SS tax.

There would be no 1116 associated with this US income.

The result then sould be US tax and SS on the wages, plus a little more to canada.
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nelsona
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Post by nelsona »

Line 104 from the CRA general guide:

Foreign employment income – Report your earnings in
Canadian dollars. See “How do you report foreign
income and other amounts?â€￾ on page 11. If the amount
on your United States W-2 slip has been reduced by
contributions to a “401(k), 457 or 403(b) plan, US Medicare
and Federal Insurance Contributions Act (FICA),â€￾ you must
add these contributions to your foreign employment
income on line 104 of your Canadian return. These
contributions may be deductible. For more information,
see line 207.

So, canada will not deny your US income tax as a credit.
And nor would US accept a Cdn citizen climing that they were allowed to exempt the income by treaty, if the income earned was more than 10K before 401(k) deduction.
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nelsona
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Post by nelsona »

RC268 takes care of 401(k) deduction on your Cdn return, in case you were not aware.
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henrimb
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Post by henrimb »

Thanks very much, nelsona, your reply was extremely helpful. I was not aware of the need to add back 401k contributions when reporting total Canada wages.

Also, when computing the US effective tax rate prior to any FTC, should I use the total wages after adding back 401k contributions in the numerator (I need the US effective rate to compute Canada FTC for US-sourced dividends)? The 1040 doesn't do this, so just want to make sure. Thanks again!
nelsona
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Post by nelsona »

You do nothing unusual on 1040. You report the same amount that wa\ould be in line 7 of your 1040. The adding back of 401(k) would only apply if you were making the treaty claim of <10k.

You are gong to use 116 the same as if your US wages were $50K, instaead of 8K or 9K.

Your effective tax rate is determined before the application of any 1116 (but do apply 2555 if you are using this), so first treat all income as US sourced to come up with effective rate.
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henrimb
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Post by henrimb »

Ok, great, I understand.

In filling out the RC268, the form asks for my 2014 RRSP deduction limit. 2014 was my first year in Canada, so I haven't received any Notice of Assessment from CRA. Would my RRSP deduction limit be the maximum for 2014 of 24,270? If not, and my deduction limit is zero, does this mean that I can't get any deduction for my US 401k contributions? Sorry for the bother, and thanks again for your help! I really appreciate it.
nelsona
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Post by nelsona »

Be careful.

Did you earn this US income before moving to canada?

If so, it is not reportable in canada. You should be filing a NEWCOMER return. which has special rules, most notably that you do not report foreign income from before your arrival, and that you put an errival date on your retunrn.


Your original post made it appear that you were lving in canda for some time, and then went and worked in US for a short stint, not that you had moved to canada in 2014.
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nelsona
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Post by nelsona »

But your conclusion is correct that if you did need to report these US wages, you would get NO deduction for them on your Cdn retunr, since you have no RRSP contribution room.

So, I hope that you do not need to report this income, if you moved to Canada after leaving that job.
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henrimb
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Post by henrimb »

I should have been more clear. I moved to Canada Jan 1, 2014, after quitting my US job (which I quit mid-Dec 2013). However, my previous job owed me wages for the time I worked there and these were paid in early 2014. Would I need to report these wages to Canada? Also, if I'm not required to report these wages, I assume that means I cannot claim a FTC for any taxes paid on these wages (including SS)?
nelsona
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Post by nelsona »

Unfortunately these wages are reportable in canada, and you will get no deduction for the 401(k).
You will get credit for the US income tax associated with those wages as determined on your 1040, and all the SS tax.

We try to encourage those leaving US to get all their monies before becoming resident. was there a particular reason you moved exactly jan 01, 2014? seems a bit artificial.

On a positive note, put in your files somewhere the amount of your 401(k) contribution for 2014. This will eventually be able to be taken without having to pay tax in canada should you still be living there when you retire.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

in any case, even if your entry date is january 1, 2014, you should indicatethison yor 2014 return, asthiswil be official notification of your deemed aquisition date for capital gains purposes.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
henrimb
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Joined: Mon Apr 20, 2015 12:01 pm
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Post by henrimb »

Ok, got it, thanks very much for your help - much appreciated!!
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