As a citizen of Canada and a nonresident alien of the US, if I pay tax in the US on my US income, what is the tax credit I receive for my Canadian tax (on my worldwide income)? Does the amount I paid for tax in the US get subtracted from the amount of tax I have to pay in Canada? Or does my US tax that I paid merely count as a deduction, so I don't pay tax on the money I spent on tax, but I still get taxed on my US income anew?
E.g. if I earned $x in the US and earned $y in Canada:
let's say my US tax comes to is 30%, so I paid 0.3x in the US
and let's say my Canadian tax is 40% so it comes to 0.4(x+y), which I need to pay in Canada.
Does the tax credit mean that I only need to essentially pay 0.1x + 0.4y in Canada?
Or does it mean something else, say, that I need to pay 0.4(x+y -0.3x) in canada, which would mean paying a lot more tax!
(I understand that it is probably more complicated than either of those, but which is more correct?)
Thank you for clarifying this for me!
foreign tax credit
Moderator: Mark T Serbinski CA CPA
The tax you owe in US is credited to you against the average tax you owe in canada on that US income.
for thopse with income in both countries, It rarely works out that all of your US tax is credited, becuase the credit is given on your 'effective tax rate' while the income is taxed at your marginal rate.
for thopse with income in both countries, It rarely works out that all of your US tax is credited, becuase the credit is given on your 'effective tax rate' while the income is taxed at your marginal rate.
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