I work from a home office in Canada for a U.S. employer as an hourly employee. About 10 days a year, I work on-site at the U.S. client - I'm on a TN visa. Based on the Substantial Presence Test, I am a Non-Resident Alien.
My employer issues me a W-2 and withholds taxes as if I were a U.S. resident. Since Non-resident aliens are subject to U.S. Income tax only on U.S. Source Income, I reported on line 8 (wages/salaries) the Wages which are considered source income. i.e. those wages for services performed in the U.S. (based on a time basis). Since this amount does not match the W-2 wages, the IRS is re-assessing me. Is there a form/line number where I should be reporting the difference?
Should I have asked the employer to not withhold based on my non-resident alien status.
Thanks!
Canadian Resident working for a U.S. Company
Moderator: Mark T Serbinski CA CPA
The problem is that the amount of time that is required to be physically in the U.S. is not predictable, so to allow for maximum flexibility I was put on the U.S. payroll and given a TN visa. Given this situation, what is the best way to present my case which is in alignment with the tax code. i.e. report U.S. source income where the work is done both in the U.S and outside of the U.S.
You need to count the days worked in each country. The days worked in US will be considered US-sourced and the days in Canada will be considered Cdn-sourced.
You will end up reporting all wages in both countries probably. It will be a nightmare to calculate.
You will end up reporting all wages in both countries probably. It will be a nightmare to calculate.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Hi, I've done the calculaton; however, I'm unclear on your comment that you'll have to report all wages in both countries. Clearly in Canada, I need to report my world income (all income), but in the U.S. tax code states that I only need to report on 1040NR line 8 U.S. source income:
[i]Line 8—Wages, salaries, tips, etc. Enter the total of your effectively connected wages, salaries, tips, etc. Only U.S. source income is included on line 8 as effectively connected wages. [b]For most people, the amount to enter on this line should be shown in box 1 of their Form(s) W-2.[/b] [/i]
[i]Line 8—Wages, salaries, tips, etc. Enter the total of your effectively connected wages, salaries, tips, etc. Only U.S. source income is included on line 8 as effectively connected wages. [b]For most people, the amount to enter on this line should be shown in box 1 of their Form(s) W-2.[/b] [/i]
Your W-2 Box 1 will include all your wages. Your firm woon't distinguish what is US-sourced and waht is not. IRS will expect you to report all of it. In fact, they already have!!
You will also have to deal with the foreign tax credit issue, and the CPP/EI issue. You will be waiting for a huge refund from IRS while owing even more to Canada.
You seem to think you won't have aproblem, but you already do!
You will also have to deal with the foreign tax credit issue, and the CPP/EI issue. You will be waiting for a huge refund from IRS while owing even more to Canada.
You seem to think you won't have aproblem, but you already do!
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
For last year, since it is past, you might as well just bite the bullet and treat all the income as US-sourced and pay US tax on it. Report all the income in canada and use the corrected US tax as foreign tax credit, and pay whatever extra to canada.
Then pray that Canada accepts that you were working in US and does not come after you for CPP/EI and Cdn tax.
See why you should be being paid 100% as a Cdn worker? If you wer, you would not even have to file in US, since you would be making less that $10K in US, and would siimply be visiting.
Your firm has not doen you any favor by paying you as a US worker.
On top of it you are losing out on your CPP.
Then pray that Canada accepts that you were working in US and does not come after you for CPP/EI and Cdn tax.
See why you should be being paid 100% as a Cdn worker? If you wer, you would not even have to file in US, since you would be making less that $10K in US, and would siimply be visiting.
Your firm has not doen you any favor by paying you as a US worker.
On top of it you are losing out on your CPP.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
But, back to your original question, you could try putting the non-US sourced wages on line 22. You will need to fill in page 5, using Article XV(1).
So, if you made $100K toatl, of which 5K was sourced in US, I would write $5000 on wage line, $95,000 on line 22.
I would probably go farther and put 0 on wage line and 100K on line 22. I would exempt the $5000 based on article XV(2)(a) (less than 10K), and 95K based on XV(1), (living and performing work in canada).
Then you just have the Cdn taxes to deal with.
So, if you made $100K toatl, of which 5K was sourced in US, I would write $5000 on wage line, $95,000 on line 22.
I would probably go farther and put 0 on wage line and 100K on line 22. I would exempt the $5000 based on article XV(2)(a) (less than 10K), and 95K based on XV(1), (living and performing work in canada).
Then you just have the Cdn taxes to deal with.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks for your responses...that is an interesting option to include the 95K under Article XV.
However, I believe that a) only U.S. source income is included for treatment under the treaty and b) that in order for XV to apply that the employer must NOT be a U.S. employer. i.e. Income from employment (Article XV): Income U.S. residents receive for the performance of dependent personal services is exempt from U.S. tax if it is not more than $10,000 for the year. If it is more than $10,000 for the year, it is exempt only if:
1. The residents are present in U.S. for no more than 183 days in any 12-mth period beginning or ending in the year concerned, and
2. The income is not paid by, or on behalf of, a U.S. resident and is not borne by a permanent establishment in the U.S.
My understanding of 2. is that if the wages are paid by a U.S. employer it is not exempt (unless < 10K). Have I misunderstood this statment?
Thanks!
However, I believe that a) only U.S. source income is included for treatment under the treaty and b) that in order for XV to apply that the employer must NOT be a U.S. employer. i.e. Income from employment (Article XV): Income U.S. residents receive for the performance of dependent personal services is exempt from U.S. tax if it is not more than $10,000 for the year. If it is more than $10,000 for the year, it is exempt only if:
1. The residents are present in U.S. for no more than 183 days in any 12-mth period beginning or ending in the year concerned, and
2. The income is not paid by, or on behalf of, a U.S. resident and is not borne by a permanent establishment in the U.S.
My understanding of 2. is that if the wages are paid by a U.S. employer it is not exempt (unless < 10K). Have I misunderstood this statment?
Thanks!
There are many mistakes in your post.
ALL income is subject to the treaty.
Artcle XV(1) refers to employment income. Period. There is no reference to the employer. Thus the work being done by you IN canada, is Cdn-sourced. Even IRS regs agree with this. So that takes care of the $95K. you report that on line 22, interesting or not. Your method didn't work for you.
Now, for the extra $5K, article XV(2)(a) simply states that remuneration for employment exercised in US by Cdn resident shall be taxed in US if it is more than US$10K. No mention of employer.
It is para XV(2)(b) that requires Cdn employer, which doesn't apply to you. That is why I said to use XV(2)(a).
If you decide not to use that second claim, that's no biggie. Trouble is, canada knows the treaty too, and will say, the $5K you report as US-source is exempt from US tax, and deny your foreign tax credit request. That is why you need to exempt all the wages on your 1040NR.
And that is why, ultimately, you should be getting your employer to pay you as a Cdn resident employee.
In any event, you need to report the wages, either all on line 7 or, if you exclude some or all of it, the rest has to go on line 22, with explanation on page 5.
ALL income is subject to the treaty.
Artcle XV(1) refers to employment income. Period. There is no reference to the employer. Thus the work being done by you IN canada, is Cdn-sourced. Even IRS regs agree with this. So that takes care of the $95K. you report that on line 22, interesting or not. Your method didn't work for you.
Now, for the extra $5K, article XV(2)(a) simply states that remuneration for employment exercised in US by Cdn resident shall be taxed in US if it is more than US$10K. No mention of employer.
It is para XV(2)(b) that requires Cdn employer, which doesn't apply to you. That is why I said to use XV(2)(a).
If you decide not to use that second claim, that's no biggie. Trouble is, canada knows the treaty too, and will say, the $5K you report as US-source is exempt from US tax, and deny your foreign tax credit request. That is why you need to exempt all the wages on your 1040NR.
And that is why, ultimately, you should be getting your employer to pay you as a Cdn resident employee.
In any event, you need to report the wages, either all on line 7 or, if you exclude some or all of it, the rest has to go on line 22, with explanation on page 5.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks Nelson!
I think what was confusing me was Publication 901, but maybe I shouldn't have been referring to this for the Pub for the income earned while performing services in the U.S.
When referring to the Treaty itself, it was clear what you were stating. So, I will file a 1040nr and an 8833.
Since the income I earned while in the U.S. exceeded the 10K (it was 12k), I had to report an amount on 1040nr, line 8. I assume that I report all W-2 earnings on my Canadian return (and claim the small Foreign tax credit for the taxes I paid on the 12K). i.e. On my Canadian return, I report the total of 12K and 95K (converted to CAD).
I think what was confusing me was Publication 901, but maybe I shouldn't have been referring to this for the Pub for the income earned while performing services in the U.S.
When referring to the Treaty itself, it was clear what you were stating. So, I will file a 1040nr and an 8833.
Since the income I earned while in the U.S. exceeded the 10K (it was 12k), I had to report an amount on 1040nr, line 8. I assume that I report all W-2 earnings on my Canadian return (and claim the small Foreign tax credit for the taxes I paid on the 12K). i.e. On my Canadian return, I report the total of 12K and 95K (converted to CAD).
My son has taken a job on a contract basis in Michigan of US last year. He is a Canadian resident. He got W-2 and paid US tax. He has to file Canadian tax return now and want to claim the foreign tax credit. He claims the foreign tax by completing the schedules 2209. Should he calculate the total income tax paid to USA by adding up all the following : (1) all taxes withheld in the W-2 (the Federal tax, Medicare, Social Security tax) (2) the US Federal tax paid after filing T1040 (3) the Michigan State tax paid after filing ?
Thanks
Thanks
Correct except that the US federal tax and Mischiagn tax will be the withheld tax on W-2 plus any extra he has to pay when filing OR MINUS any he gets as refund when filing.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best