IRS interest on 1099-INT

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Frankd1
Posts: 106
Joined: Tue Feb 14, 2012 9:58 am
Location: Canada

IRS interest on 1099-INT

Post by Frankd1 » Fri Mar 01, 2019 11:24 pm

I have a question about a 1099-INT form that arrived in the mail today...this is for interest in the amount of $58.47USD paid to my wife by the IRS.

My wife is a U.S Citizen and PR of Canada. She lives and works in Canada.

We filed her 2018 IRS return and post marked it for mailing on October 14, 2018 - just prior to her 6 month extension deadline of October 15, although that deadline date doesn't much matter as she was due a refund in the amount of $1843.00USD from the additional child tax credit.

Sometime in December she received her refund check but it was in the amount of $1901.47USD. Thought maybe we made a mistake (used TaxAct) and the IRS corrected it, sending her a higher amount.

Fast forward to today when we received the 1099 and thats why the refund check was higher, due to the interest paid.

I think perhaps because they cut the check beyond a 45 day period??

How should the interest be handled?

1. File on her Canadian return line 121 as interest converted to CAD, even though it is U.S sourced

2. File on her IRS return on the taxable interest line form 1040 as taxable interest - $58.47USD

3. Show it on IRS schedule B

She may have to use a form 1116 this year because of the elimination of the IRS personal exemptions. Her Head of House hold standard deduction may not be quite high enough to zero out income. So:

4. One f1116 for general income and one f1116 for passive income - the $58.47

Not sure if the above is correct so looking for some guidance on that 1099-INT

Thanks,

Frank

Frankd1
Posts: 106
Joined: Tue Feb 14, 2012 9:58 am
Location: Canada

Re: IRS interest on 1099-INT

Post by Frankd1 » Sat Mar 02, 2019 12:08 am

Sorry meant to say "we filed her 2017 IRS return and post marked it for mailing on October 14, 2018"

nelsona
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Re: IRS interest on 1099-INT

Post by nelsona » Sun Mar 03, 2019 10:33 am

AS a US citizen she reports world income to both US and Canada, regardless of source: wages, interest, whatever.
So, she reports on both, and can get credit for and US tax owed on that interest ONLY on her US return (not Canada) even though it is US-sourced, by filing a 1116 're-sourced by treaty'.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Frankd1
Posts: 106
Joined: Tue Feb 14, 2012 9:58 am
Location: Canada

Re: IRS interest on 1099-INT

Post by Frankd1 » Sun Mar 03, 2019 3:25 pm

Thanks nelsona, I forgot about the resourced by treaty 1116 as it applies to US sourced interest.

So basically, the tax credit will only be for the amount of that the IRS would tax her on that specific amount of interest.
Essentially, $6 from the 1040 tax table....with no carry forward amounts applicable.

I use TaxAct software and I'm pretty sure it'll handle the resource by treaty 1116.

nelsona
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Re: IRS interest on 1099-INT

Post by nelsona » Sun Mar 03, 2019 4:36 pm

Foreign tax credits are always determined by using EFFECTIVE tax rates, not marginal, and not as income all by itself.

So her 1099 income would be prorated against all her other taxable income, and that number would be multiplied by the US tax she would owe on all the income.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Frankd1
Posts: 106
Joined: Tue Feb 14, 2012 9:58 am
Location: Canada

Re: IRS interest on 1099-INT

Post by Frankd1 » Mon Mar 04, 2019 12:52 am

makes sense thanks!

I'm guessing an 8833 is not required to explain treaty provision?

nelsona
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Re: IRS interest on 1099-INT

Post by nelsona » Mon Mar 04, 2019 10:48 am

No. the fact that you are using the "re-sourced by TREATY" 1116 should suffice.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

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