Questions on F2555 and F1116

[USACAN]

Hi there,

My wife and I are both USC living in Canada. I work for a Canadian employer and receive T4 income. My wife works remotely (from home) for a US employer in California and receive W-2. We also receive interests from US bank. The account was opened before we moved to Canada. We also have interest from Canadian deposit.

Here are some hypothetical numbers: My T4 salary $20,000, my wife's W2 salary $15,000. 1099-INT from US savings $100, T5 from Cdn account $150. I believe all of these are subject to Canada income tax.

I have a few questions about Form 2555 and Form 1116.
1. I think the 20,000 T4 salary can be reported on 2555 (say, $5000 get excluded). How about the $15,000 W-2 salary? Is it considered foreign earned income? Can I report it on 2555?

2. Can I still claim FTC using Form 1116 after Form 2555? If so, how do I fill in the numbers? I understand salary is general income while interest is passive income. So I will need two copies of F1116. For line 1a and 2d, which numbers do I use for the general income category and passive income category? Can I still report the remaining $15000 T4 salary ($20,000-$5000 excluded on Form 2555) on Form 1116?

3. Finally, how do I figure out the tax paid for each category? When we file Canadian tax, we have two returns and two tax amounts. But they do not separate between tax on interest and tax on salary.

Really appreciate your help!

[nelsona]

Your wife should not be getting a W-2, since hse works in Canada. Sge miust be pais as Cdn employee and have Cdn withholding applied.

It is however foreign income, so should be excluded. Why wouldn't;'t all your salary be excluded?

After any wages that are not excludable on 2555, you can use 116 on the remainder.

ALWAYS income and tax are prorated (averaged) over what you determined on your tax returns BEFORE application of FTC, but after application of 2555.