Child Tax Credit and World Income Reporting

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papillary
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Joined: Wed Mar 20, 2019 7:19 pm

Child Tax Credit and World Income Reporting

Post by papillary » Wed Mar 20, 2019 8:11 pm

Hi nelsona,

There is been much confusion prior to laying my hands on this forum. All lot is not clear but still I have a couple of questions. But first here is my situation:

- I am Canadian Citizen and Resident. I live in Canada and commute to work in USA (TN Visa) every day. Only source of income is work in USA so will be using W2. I have a US social security #.
- My wife is Canadian Citizen and Resident. My wife has little income from Canada (under $10,000 USD). This past year 2018 she started getting interest on bank account overseas (good some of money she got as gift from her parents). Of course the bank account and interest income will be reported to CRA on the 2018 forms. My wife has as US ITIN # which has been used on past 1040NR submissions.
- Have 2 kids both under 14 and are Canadian Citizens and Residents. Both have US ITIN #s which have been used on past 1040NR submissions.

In the past years, I have been filing the past years the 1040NR MFS tax rate (only option available) but that was prior to 2018. Thus I was able to claim an exemption for each of the 4 of us which comes to 16,200 so it was ok I guess, not knowing that I could claim whatever taxes I paid to Canada on CRA forms.

Because of the taxes changes in US for 2018 tax year, and not having any exemptions now to claim, I had been looking on ways how a Canadian can claim the new Standard Deduction till I finally found this forum a couple of days ago and have been reading all the different threads so I am now aware of the option to file a Pro Forma 1040 MFJ and use the better tax rate from that to lower my taxes on the 1040NR, but still I have a 4 questions that I would appreciate your help with.

1) US Child Tax Credit. Can I claim that for both of my kids. Do I claim that on the Pro Forma, then I can claim it again on line 49 (child tax credit) on the 1040NR? $2000 per child. Because in one place it says can be claimed by US Citizens and Nationals and citizens of Canada and Mexico. I had read a thread on this forum in 2007 and I quote what you had said back then "By the strict rules of the child tax credit, if your children are not living in US, your children are supposed to be US citizens or GC-holders (and have an SSN), but several have applied for the credit and received it, even though their child was NOT a citizen, and was living in Canada. The citizenship part is easily dismissed by the non-discrimination clause of the treaty. However the SSN requirement (which may have been relaxed for 2206 and beyond) is not easily overcome." So what is your advise??? I do not want to misinterpreting something that was in a different context perhaps.

2) As I said the foreign interest income for my wife she will claim on her CRA for 2018. Do we need to report that on the IRS Pro Forma 1040 MFJ? or 1040NR for that matter? because in some of the threads I read that it is only reporting US income but I could be again misinterpreting something that you were saying in a different context.

3) It is my understanding to use the Pro Forma tax rate I need to submit form f8833, but when I looked at this form it seemed a bit complicated. question 1 on the form is easy: list country (Canada) and article (XXV (4)). But then questions 2-6, I am not too sure how to respond to those.

question 2: List the Internal Revenue Code provision(s) overruled or modified by the treaty-based return position
question 3: Name, identifying number (if available to the taxpayer), and address in the United States of the payor of the income (if
fixed or determinable annual or periodical).
question 4: List the provision(s) of the limitation on benefits article (if any) in the treaty that the taxpayer relies on to prevent application
of that article
question 5: Is the taxpayer disclosing a treaty-based return position for which reporting is specifically required pursuant
to Regulations section 301.6114-1(b)?

question 6: Explain the treaty-based return position taken. Include a brief summary of the facts on which it is based. Also, list the nature
and amount (or a reasonable estimate) of gross receipts, each separate gross payment, each separate gross income item, or
other item (as applicable) for which the treaty benefit is claimed

4) Finally what is the deal with form dealing with exclusion of Canadian income (form 2555) does this apply in my case or what a completely different scenario?

I hope this is not a lot and kindly need your valuable expertise on all of this.

nikitapunch
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Location: Canada

Re: Child Tax Credit and World Income Reporting

Post by nikitapunch » Thu Mar 21, 2019 9:52 am

I am not an expert but I saw an accountant yesterday as I did something similar for them to check what I did as I am doing pro forma 1040 for the first time.

1. US Child Tax Credit - My children are US citizens with an SSN but if there were not I was told I would not have been allowed to enter. I have seen references on this forum which would say otherwise.

On the 1040NR go up to line 41.

On the pro forma 1040 don't go past line 11a Tax and cross out the rest. The goal is to get the number you need for the calculation to put on your 1040NR. The pro forma 1040 is only for the calculation and is not a tax return.

Then continue on with your 1040NR.

2) Worldwide income for a spouse is reported on the pro forma 1040 only. Basically anything the US would consider income to them.

3) Correct on using Form 8833. Enter 1a, b for Country and Article XXV(4) and just go to 6 and describe what you are doing. I didn't check anything. Also, if you have questions on how to complete the IRS International support is available. Just make sure you get to the area for International tax law department.

4) When you use the pro forma it is my understanding that you cannot use Form 2555. I am understanding this is only to be used for US citizens processing a regular 1040. A US citizen can use Form 2555.

nelsona
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Re: Child Tax Credit and World Income Reporting

Post by nelsona » Mon Mar 25, 2019 4:05 pm

1. If eligible, you would claim the tax credit on the 1040NR. You won't get that far on the pro forma 1040 to use it.
2. pro forma has everything, 1040NR has US-sourced only, following the rules of 1040NR.
3. no need for 8833, the 1040NR has explanatory section, and pro forma would have XXV(3) notation on top.
4. The pro forma, by definition , doe not allow foreign income exclusion, because you must pretend all income is from US.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

papillary
Posts: 25
Joined: Wed Mar 20, 2019 7:19 pm

Re: Child Tax Credit and World Income Reporting

Post by papillary » Tue Mar 26, 2019 7:59 am

Thank you both for your replies.

nelsona,

1) I am still not clear whether in my case (kids are Canadian Citizens and Residents, Not US Citizens/Residents, have ITINs for both but no SSN) can I claim the tax credit for them on 1040NR.

2a) the overseas bank account that has interest is in both my wife's and my name. Plan is that she puts the interest (it is a good chunk of interest) on her CRA and claim foreign taxes for what she has to pay in taxes on that interest overseas. Can I then after including this interest and her income and my income on the Pro Forma, then claim the taxes on that interest as a foreign tax deduction on 1040NR (or Pro Forma).
2b) Related to this, can the taxes she is paying on her Canada income (CPP, EI, Union dues, income tax - all deducted from her paycheck) be deducted somewhere on the 1040NR (or Pro Forma)

3) Is it XXV (3) or (4). I know you said (3) so could you briefly explain why 3 vs 4? and is it just less headache to fill the 8333 and be done with it? or no need at all?

4) Is form 2555 only for US citizens to use as nikitapunch had indicated?

nelsona
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Re: Child Tax Credit and World Income Reporting

Post by nelsona » Wed Mar 27, 2019 5:37 am

1040NR cannot include foreign tax as a credit or deduction in your case, since you are not reporting any foreign income. Also, US bank interst is not taxable on 1040NR.
The rest will have to wait.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

papillary
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Joined: Wed Mar 20, 2019 7:19 pm

Re: Child Tax Credit and World Income Reporting

Post by papillary » Wed Mar 27, 2019 9:22 am

Thank you for reply, but that is a bit confusing, what is meant by that line46 (foreign tax credit) on 1040NR, I can see not being able to use it for overseas tax paid on the interest, but you are saying I cannot even use it for tax paid to Canada in 2018?

nelsona
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Re: Child Tax Credit and World Income Reporting

Post by nelsona » Wed Mar 27, 2019 10:26 am

There is no foreign income on your 1040NR. For foreign tax to be credited, you must report foreign income.
That is why I said "in your case".

The instructions for 1040NR and Pub 519 list certain foreign income that would still need to be reported on a 1040NR. Since that income would likely be taxed by the other country as well, it gives rise to the possibility of using 1116.

None of these apply to you.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

papillary
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Re: Child Tax Credit and World Income Reporting

Post by papillary » Wed Mar 27, 2019 8:51 pm

nelsona,

so I read the pub 519 (chapter 4) as you had suggested and I think I understand what it is saying. Sorry for the long post but I am still not clear on some issues.

In my case I think that there is 1 option that I have in dealing with this interest and foreign taxes paid issue among other things. I will state the scenario below so your advise is much appreciated if I am allowed to do it this way. Alternatively, if you have a better way of how I should approach his, please please let me know.

First I will state the facts here again for ease of reference.

My wife (has ITIN), 2 kids (have ITINs), and I are Canadian Citizens and Residents. My wife has little income from Canada (under $10,000 USD). I work in the US under TN Visa and I have a US SSN. This past year 2018 she started getting interest (a very good chunk of money) on a bank account overseas (money she got as a gift from her parents). The plan is to of course report the bank account and interest income to CRA on the 2018 forms.

Question 5) - Overseas bank account is in my wife's name and my name (joint account), so I am hoping that we have a choice as to who reports the bank account and the interest generated on their Canadian taxes. Am I right to assume that?

Scenario
On CRA Forms:
for wife - she puts the foreign interest income (it is a good chunk of interest) on her CRA and she claims credit for foreign taxes that was paid on the interest overseas, that is of course in addition to reporting her Canadian income. Choice here was to put the foreign interest income on my wife's CRA instead of mine, so that the added foreign interest income does not lead to me being taxed at the higher tax bracket on my CRA.
for me - I put the US income on my CRA and claim credit for foreign taxes paid in USA

On IRS Forms:
I fill a Pro Forma MFJ (up to line 11) where my wife's income and my income are reported on line 1, and interest from overseas is reported on line 1 as well? or would it have to be reported on line 2b (any special schedule that we need to fill?). This is all is to get the Pro Forma tax rate (with 24000 standard deduction on line 8), then use that rate to calculate the tax on line 42 of 1040NR where only my US income is reported.

questions about this scenario:
1- As far as I can see on form 1040 (between line 1 and 11) for the sake of the Pro Forma, we cannot deduct any of the taxes I paid to CRA in 2018 (basically Ontario taxes), nor can we deduct the taxes my wife had to pay on her paychecks from Canadian income, nor can we deduct foreign taxes that were paid overseas on the foreign interest. Is this accurate as far as 1040 Pro Forma?
2- From what you said in your last reply, I cannot claim foreign tax credit on from 1040NR for any of these taxes paid that I have mentioned in question 1. Is this accurate?
3- All that I can claim is basically state and city taxes (itemized deductions Schedule A on line 37). Is this accurate? and is there anything else that I can claim?
4- I am still unclear if I can claim Child Tax Credit on line 49 of 1040NR for my 2 kids (both Canadian Citizens and Residents). Have ITINs for both but no SSN since they were not born in the USA. The wording is confusing as I mentioned in a previous post. In one place it says that you need SSN to qualify for the Child Tax Credit, but then it says that you can get the credit if you are US Citizen, US National, and citizen of Canada and Mexico. so can I claim it or not, of course I do not want any trouble with IRS for claiming something that I should have not claimed especially that they have a cautioning paragraph to that effect.
5- There is an Additional Child Tax Credit on line 64 of 1040NR, can I claim that on top of line 49, that is of course if I can claim credit on line 49 in the first place. If I cannot claim credit on line 49, can I still claim the credit on line 64?

Thank you once again for all your time and help with this. You input and advise is much appreciated.

nelsona
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Re: Child Tax Credit and World Income Reporting

Post by nelsona » Thu Mar 28, 2019 10:16 am

As you can see from my signature, you are coming here way too late in the season for me to give you much more help. Its one of rthe reasons I usually stop posting at this time: long rambling detailed questions by those actually doing there taxes. I prefer to deal in tactics, not mechanics. I leave that for the rest of the year.

Foreign taxes PAID (and not refunded) in the year are eligible for the 1040 pro forma. Not on the 1040NR.

Joint account bank interest is divided on the basis of who put the money in the account.
Foreign income on 1040 is reported on the lines they would be on if it was US income, wages on the wage line, pensions on the pension line, interst on the interest line, etc.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

papillary
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Re: Child Tax Credit and World Income Reporting

Post by papillary » Thu Mar 28, 2019 1:47 pm

nelsona,

Thank you for your reply and I do understand where you are coming from.

-Foreign taxes paid on the Pro Forma go under itemized deductions I assume? Thus I would have to choose between that and the $24000 standard deduction, right?

-Well the money is from my wife's parents, but the account is in her and my name. Question thus becomes, since I will have some unused foreign tax credit on my CRA (income from US), can I put PART of foreign interest income on my CRA and the remaining big chunk of it on my wife's CRA. This way I would have used up any unused foreign tax credit on my CRA, while of course staying in the lower bracket.

-I am sorry but I have to ask you this again. I am still unclear if I can claim Child Tax Credit on line 49 of 1040NR for my 2 kids (both Canadian Citizens and Residents). Have ITINs for both but no SSN.

-Finally, as for the Additional Child Tax Credit on line 64 of 1040NR, can I claim that on top of line 49, that is of course if I can claim credit on line 49 in the first place. If I cannot claim credit on line 49, can I still claim the credit on line 64?

Thanks again for your help.

nelsona
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Re: Child Tax Credit and World Income Reporting

Post by nelsona » Thu Mar 28, 2019 1:57 pm

You will have to figure this out your self.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

papillary
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Re: Child Tax Credit and World Income Reporting

Post by papillary » Thu Mar 28, 2019 5:10 pm

Okkk

Not sure what I have done wrong. Many others had long if not longer descriptions of their situations than mine, and you had detailed answers and explanations for their questions and/or confirmed for them whether they were doing things right or wrong, just as I was trying to do.

Definitely no one can force you to provide advise/help more than you choose. Regardless, none of us is paying you for your valuable advise and whatever info you gave us is all much appreciated.

Thanks

nelsona
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Re: Child Tax Credit and World Income Reporting

Post by nelsona » Thu Mar 28, 2019 5:32 pm

Your posts are little too long for me to pore through. Sorry.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

papillary
Posts: 25
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Re: Child Tax Credit and World Income Reporting

Post by papillary » Thu Mar 28, 2019 5:49 pm

Not a problem. Not try to argue with you but wanted to state a couple of facts.
My longest post (the first one) had 4885 characters with spaces.
Someone else (specifically nikitapunch) had a post with 7735 characters with spaces.

so like I said some others have had way longer posts than mine to explain their situation before asking you whatever they wanted to ask, and you had no problem coming back with answers to all their questions. This is what encouraged me to go into a bit of detail of the situation.

again not trying to argue with you and thanks again for all the valuable help and advise you provided me with.

nelsona
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Re: Child Tax Credit and World Income Reporting

Post by nelsona » Thu Mar 28, 2019 9:08 pm

I guess you are trying not to argue. Good luck.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

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