Child Tax Credit and World Income Reporting

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nikitapunch
Posts: 24
Joined: Wed Sep 02, 2015 10:21 pm
Location: Canada

Re: Child Tax Credit and World Income Reporting

Post by nikitapunch » Fri Mar 29, 2019 12:43 pm

For the child tax credit I highly recommend calling the IRS and speak to someone in the international tax law area. The instructions indicate an SSN is needed but you can also mention you are using Article XXV (25) and see what response you get. Some of them are quite helpful and they may be able to answer the question on interest which you have. They can even advise on the use of Form 8833.

Line 46 on the 1040NR using form 1116 instructions states that if you are nonresident alien you generally can't take the credit.
However, you may be able to take the credit if:
•You were a resident of Puerto Rico during your entire tax year, or
•You pay or accrue tax to a foreign country or U.S. possession on income from foreign sources that is effectively connected with a trade or business in the United States.

The key is effectively connected which is not the case for you.

I would advise with what nelsona mentioned on foreign taxes but again good IRS question. You would itemize I expect. I recall a post you can't take the deduction.

FYI - From my experience if there was interest from a US source (I know your interest is coming from a foreign source) it would go on the 1040NR schedule NEC and not the first page. Nor would it go on the 1040. I believe this applies to dividends too but not the exemption. Goes on 1040NR but not 1040 as the 1040NR has a specific section (NEC). The first page 1040NR is for EC (effectively connected income). NEC (not effectively connected) is how to view interest. Under a tax treaty with Canada I know that US interest is not taxable by the US but taxable in Canada.

So if I had US interest and using Pro Forma I would not enter the interest on the Pro Forma. Instead I would add it as exempt income on line 22 Schedule OI, Item L(1)(e). Tax treaty article would need to be entered in section L. Again your interest is not from US source NEC so not sure. Enough with my tidbit.

Using 2 forms in your situation with what you have can get confusing so I can't say much more on this without getting confused myself. I am no expert so can only speak from direct experience.

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

Re: Child Tax Credit and World Income Reporting

Post by papillary » Fri Mar 29, 2019 2:13 pm

nikitapunch,

Thank you for all your input. I will sit down and read it all again. You have been very helpful. I was going to post a message to you but you beat me to it. If I have any further clarifications that I need, and that you might be able to help with, I will msg you.

I read pub 519 chapter 4 again today and from what I understand, unless the foreign income (in my case interest) is connected to US then I should not put it on 1040NR which in turn means then that I cannot not claim credit for any foreign taxes on that income. I would report the interest on the 1040 Pro Forma, in addition to my wife's Canada income. Question remains is whether is there a place on the 1040 Pro Form to claim credit for the foreign taxes on income (be it on my wife's Canadian income and on the foreign interest income). I will have to do some more digging around.

As for the Child Tax Credit (CTC) the wording is clear that you need SSN but what has been confusing me is as you had mentioned in your earlier post that in some places on the forum it says you can still claim the CTC. I do not understand how. The other thing I read related to this issue is that if you cannot claim the CTC one might qualify for the Additional CTC, but I still have to read the pub on this more carefully to make sure I understand it correctly.

Thanks again for your input and advise.

nelsona
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Location: Nowhere, man

Re: Child Tax Credit and World Income Reporting

Post by nelsona » Sat Mar 30, 2019 12:58 pm

The pro forma is allowed only if one assumes ALL income occurred in US (that is straight from the treaty), thus no possibility of foreign tax CREDIT. You can use the foreign tax PAID during the year (and not later refunded) as a DEDUCTION on the pro forma.

Child tax credit has nothing to do with treaty, since nothing in the child tax credit/ or additional tax credit rules requires US citizenship. This you either meet the criteria, or not based on the IRS regs. If child qualifies, you put it on the 1040NR in the correct line(s), nit on the pro forma, which stops at line 11.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

adeboloj
Posts: 38
Joined: Fri Mar 24, 2017 10:50 am

Re: Child Tax Credit and World Income Reporting

Post by adeboloj » Sun Mar 31, 2019 8:13 pm

I just got passed the Proforma 1040 and Line 42 on 1040NR, there isn't much different for me as the income on proforma 1040 is high as well (combine income), difference is around $1,000 with XXV(3) rate better. So will probably use the proforma rate.
Yet, am still not able to use all my SS, Medicare with Federal tax on the Canadian return so I need to lower my U.S tax to the level i can use all my FICA. Since there is not much from XXV(3), I can only proceed with the rest of the credit on 1040NR, Line 47, 49 or 64 (I am not planning to take foreign tax credit on Line 46).
However, I see this question after doing a research that one might need to figure it out on his own i.e. Line 49.
Line 49 seems to be a grey area, I am in the same boat as Papillary- Kiddos have ITINs as well as my spouse and they are Canadian resident, no SSN, So what was you conclusion Papillary? Did you get to claim the Child tax credit & credit for other dependents? OR you let go, Please let me know how you figure this out?

My second question is:
Can we claim line 47?, credit for child and dependent care expenses? if yes, will the acceptable provided be in Canada? since kiddos live in Canada /resident, the only provider information will be in Canada, if yes, will this amount to converted to USD in order apply on 1040NR.
Nelosona, Nikitapunch, I will appreciate your help here, the deadline is 2 weeks time and I need to get the tax done ASAP.

Thank you

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

Re: Child Tax Credit and World Income Reporting

Post by papillary » Sun Mar 31, 2019 8:33 pm

adeboloj,

I was trying to ask you basically the same thing in the other post :)

on the 1040NR, as I said to get the CTC (line 49) or the Additional CTC (line 64) it clearly says that the kids need the SSN. nelsona had indicated as you can seen in the last post that the CTC would go on the 1040NR and not on the Pro Forma, and that is has nothing to do with the treaty. That is very clear for me. nelsona then added that you other qualify or not according to IRS regs. Based on that, I am pretty convinced now that since my kids do not have SSN then they do not qualify to both the CTC or ACTC. Anyone can correct me on this if I am wrong.

My only question now is the Credit for Other Dependents (ODC) which the publication says can be used for your dependent child that was not able to use the CTC. By the way you can only use one or the other (CTC or ODC, and not both). For the ODC (max of $500 per child) you can use SSN or ITIN, which my kids have, but then when I started filling out the worksheet for this purpose, they have a Caution line stating not to include "anyone who is not US citizen, US national, or US resident alien.

Thus, does the tax treaty have a say on this where an article can be used in order to claim the ODC? because under the tax treaty a Canadian should be treated as US citizen. Please can anyone clarify this for us?

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

Re: Child Tax Credit and World Income Reporting

Post by papillary » Sun Mar 31, 2019 8:48 pm

For the child care expenses (line 47), I cannot see why you cannot claim that as long as you qualify according to the instructions for that line, to the below mentioned 5 requirements:

1. Your filing status may be single, head of household, qualifying widow(er) with dependent child, or married filing jointly.
2. The care was provided so you (and your spouse if filing jointly) could work or look for work. However, if you didn't find a job and have no earned income for the year, you can't take the credit or the exclusion.
3. The care must be for one or more qualifying persons.
4. The person who provided the care wasn't your spouse, the parent of your qualifying child, or a person whom you can claim as a dependent. If your child provided the care, he or she must have been age 19 or older by the end of 2018, and he or she can't be your dependent.
5. You report the required information about the care provider on line 1 and, if taking the credit, the information about the qualifying person on line 2.

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

Re: Child Tax Credit and World Income Reporting

Post by papillary » Sun Mar 31, 2019 8:51 pm

adeboloj,

yes amount for child care expenses would of course have to be converted to USD (rate is 1.297 for 2018) divide whatever you paid in Canada by 1.297 to get the USD amount.

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

Re: Child Tax Credit and World Income Reporting

Post by papillary » Sun Mar 31, 2019 8:59 pm

nikitapunch,

In your reply about the Child Tax Credit, you mention Article XXV (25), but I do not think that exists since XXV goes up to (10) so if you could please clarify what you meant. Thanks

adeboloj
Posts: 38
Joined: Fri Mar 24, 2017 10:50 am

Re: Child Tax Credit and World Income Reporting

Post by adeboloj » Mon Apr 01, 2019 12:25 am

@Papillary,
I do not believe you can claim any of these i.e. 49- Credit for child and dependent, 64- Additional child tax credit, as well as 47- Credit for child and dependent care expenses, except someone has claimed it before on the forum and can advise but based on the instruction i read, I do not think i personally can claim 47-
I also use Taxact software to verify and wasnt given credit for 47, more so I read the instruction, aside from you listed it also mentioned as follows:

Page 2 of 2441 - Instruction for child and dependent care expenses,
" Generally, married persons must file a joint return to claim
the credit. If your filing status is married filing separately
and all of the following apply, you are considered
unmarried for purposes of claiming the credit on Form 2441.

• You lived apart from your spouse during the last 6
months of 2018.
• Your home was the qualifying person's main home for
more than half of 2018.
• You paid more than half of the cost of keeping up that
home for 2018.
If you meet all the requirements to be treated as
unmarried and meet items 2 through 5 listed earlier, you
can take the credit or the exclusion. If you don't meet all
the requirements to be treated as unmarried, YOU CAN'T TAKE THE CREDIT. However, you can take the exclusion if you
meet items 2 through 5.
This example referred to also clearly shows that, the couple are separated
Example. Amy separated from her spouse in March...

There must be a reason why the software did not give me credit, as such i do not believe you can claim 47) except you lived apart from your spouse during the last 6 months in the year 2018.

There is an exclusion that you can claim the credit for child and dependent expenses but you must meet items 2 to 5: BUT if you are not filing joint as stated in item #2 then you cannot take the credit.

2. The care was provided so you (and your spouse if
filing jointly) could work or look for work. However, if you
didn't find a job and have no earned income for the year,
you can't take the credit or the exclusion. But if you or your
spouse was a full-time student or disabled, see the
instructions for lines 4 and 5, later.
3. The care must be for one or more qualifying
persons.
4. The person who provided the care wasn't your
spouse, the parent of your qualifying child, or a person
whom you can claim as a dependent. If your child
provided the care, he or she must have been age 19 or
older by the end of 2018, and he or she can't be your
dependent.
5. You report the required information about the care
provider on line 1 and, if taking the credit, the information
about the qualifying person on line 2.

nikitapunch
Posts: 24
Joined: Wed Sep 02, 2015 10:21 pm
Location: Canada

Re: Child Tax Credit and World Income Reporting

Post by nikitapunch » Tue Apr 02, 2019 6:46 pm

Other than nelsona response for subject: Article XXV for Canadian Residents that is the most knowledgeable response from someone who knows.

Unfortunately I don’t know to advise further. Sorry.

If one can get someone knowledgeable from the IRS they may answer as well.

For international return their support line is actually open till 11 PM Eastern time.

nelsona
Posts: 15980
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Child Tax Credit and World Income Reporting

Post by nelsona » Tue Apr 02, 2019 9:06 pm

The fact that CTC and ODC appear on the 1040NR, obviously means that non-residents are not expressly forbidden to take CTC. So then it is the dependents that need to qualify, by (a) meeting the quals of being your dependent, AND (b) meeting the documentary requirements of CTC and ODC.

This would be the case whether you are using 1040 to file (using XXV(2)), using 1040NR alone, or using 1040NR and XXV(3).
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 » Wed Apr 03, 2019 8:29 am

nelsona,

I am going to have to bug again. Hopefully I will keep it short and simple to get you valuable (as always) advice.

I ran all 3 scenarios last night that you mentioned: a true 1040 MFS, a 1040NR, and the 1040NR XXV (3) with pro forma 1040

I kept it simple with no CTC or OCD.

For true 1040 MFS, just had the standard deduction of 12000, only my income
For 1040NR, just had the state and city taxes deducted, only my income
For 1040NR w/ pro forma, my spouse and my income world wide, with 24000 deduction on the pro forma to get rate to apply in the 1040NR

To my surprise, in my case I came on top using the 1040 MFS. I guess because my spouse's income is on the higher side, and as you had indicated 1040NR with pro forma works best when spouse has little to no income.

My questions:
1) it is perfectly alright to file the 1040 MFS, right? I will not get any trouble from IRS if i had filed 1040NR in the past.
2) I am ok doing this as MFS? although for my paycheck I have deductions my wife and 2 kids?
3) for the state and city taxes, can I still file them as Married filing jointly, and as a non-resident?

Thanks again.

nelsona
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Location: Nowhere, man

Re: Child Tax Credit and World Income Reporting

Post by nelsona » Wed Apr 03, 2019 10:43 am

1. legal? Sure. But you may also be needlessly subjecting yourself to other filing requirements like FATCA and PFIC, since you are electing to treat yourself as a resident, which you may not want.
That is the advantage of XXV(3), it doesn't say treat me like a resident, as (1) and (2) do. It says treat me as the non-resident that I am, just give me the better tax rate than 1040NR. I would not recommend 1040 MFS unless you are a citizen or GC holder.
2. Your withholding is of no consequence. You can have as little or as much withholding as you wish (as long as you meet the minimum required for the year). It doesn't matter what boxes you tick on W-4.
3. Follow the rules of your state. too varied to look into.
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 » Wed Apr 03, 2019 12:38 pm

nelsona thank you so much for ur input.

here is the thing, tactics wise I was thinking ahead for next year 2019.

I mean even for this year I came ahead by a couple hundred dollars when I ran it as a true 1040 because I only have US income myself. Where as when I run it as 1040NR w/ pro forma, it has to be joint and which then means that I have to include my wife's canadian income (small chunk) and of course the bigger chunk being the foreign interest. Don't we have to worry about FATC and PFIC doing the 1040NR w/ pro forma? since world income has to be reported

so in thinking ahead I figured for 2019 the foreign interest is for sure going to be a lot more since she has moved it to a higher interest yielding account and so for 2019 by including her again on the 1040NR with pro forma rate it I will have to pay a good chunk more compared to what I would be paying if I just file a true 1040 with just my income. of course for both 2018 and 2019 a regular 1040NR is not an option at all.

Your thoughts are much appreciated. Am I thinking right? or is there something that I am missing that I should be aware of.

Thanks

nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Child Tax Credit and World Income Reporting

Post by nelsona » Wed Apr 03, 2019 2:25 pm

FATCA is only a reporting issue, not a tax issue, so it doesn't figure into pro forma. TFSA and RESP and probably PFIC income do. You can always overestimate these.
You need to remember that the MFJ not only gets an extra $12000 deduction, it also gets a better tax rate that MFS. 100K at MFS is taxed about 15%. You would need to have about $200K of income MFJ to have the same rate.

No one is forced to use XXV(3). If it gets too complicated, just file 1040NR.

I would not file 1040 MFS, because of triggering other requirements.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

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