How to enter RRSP withdrawal (NR4 with code 43) into US tax

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Lilia
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Joined: Tue Mar 26, 2019 11:56 pm

How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by Lilia » Wed Mar 27, 2019 1:08 am

Hi,

We are a green card holders and now live in US (as of 2017). During 2018, we withdraw a big part of our Canadian RRSP (US version of a 401k plan) and got a Canadian "NR4" form with income type code 43 (RRSP - Lump-sum payments).
NR4 Box 14 = 43 RRSP - Lump-sum payments
NR4 Box 16 = 300k - Gross income
NR4 Box 17 = 75K - Non-resident tax withheld (25%)

How should these numbers (Gross Income from Box 16 and tax withheld from Box 17) be reported to US?
Which Forms should be used to report it? We are using TurboTax to file.
We've tried all possible combinations and always end up that Tax due is 80K.
We have no other foreign income.
Our US income (W-2) is 100K and without NR4 numbers there is no Tax Due.
How it possible that we have to pay to US so much taxes (80K) from 300K on top of what we already payed to Canada (75K)?

Thank you very much for any help you can provide

nelsona
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Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by nelsona » Wed Mar 27, 2019 5:18 am

The gross RRSP withdrawal goes on the pension line 4(a), the taxable portion goes on 4(b).

You need to determine the taxable portion. We have discussed this at length here, so will not repeat.

The tax withheld goes EITHER on schedule A as an itemized deduction, or on a 1116 as a foreign tax credit, against the taxable portion of your withdrawal.


Unless the taxable portion is MUCH less than the gross (it should be, depending on how long you have lived in US) there will be US (and state) tax to pay
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Lilia
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Joined: Tue Mar 26, 2019 11:56 pm

Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by Lilia » Thu Mar 28, 2019 3:32 am

I do not even know how I could express my gratitude for you advice! :-)
THAN YOU for your support, your prompt response, for sharing your knowledge and expertise with other people!

Using your directions I was able to enter correctly the RRSP withdrawal.
As per entering the tax withheld, I am getting different results:
1. Entering the tax withheld on Schedule A (itemized deduction) will result in $1.5K Federal Tax Due;
2. Entering the tax withheld via Form 1116 (as a foreign tax credit against the taxable portion) will result in no Federal Tax due;
Should these 2 methods calculate the same final result for my case (e.g. not tax due)? What is difference between these 2 methods and how to determine which one to use?

Best Regards

nelsona
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Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by nelsona » Thu Mar 28, 2019 10:08 am

I would be surprised that the credit method didn't leave you with tax due, since by definition the taxable portion of your RRSP is added to the top of your income (marginal rate), but the credit is given as your effective (average) rate. I trust you are using software?
What is your taxable portion of the $300K?
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Lilia
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Joined: Tue Mar 26, 2019 11:56 pm

Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by Lilia » Thu Mar 28, 2019 2:25 pm

Thank you so much for your reply. Really-really appropriate your help.

Non taxable (as of date we've arrived to US in 2017) 295,888
Gross withdrawal in 2018(As of date of withdrawal) 301,412
Taxable ratio: 0.018
Taxable portion 5,523
Total Taxes paid to Canada (25%) on Gross withdrawal 75,315

I am using TurboTax. All numbers were converted to USD. When asked to "Enter your taxes you paid on your Canadian pension in the box "Other income" I put 1,381 (25% from Taxable portion) and this became my Foreign Tax credit.
Am I doing this wrong? Looks like. When I open Form1116 I see that Turbo Tax soft put 'Net foreign taxable income' as 269,607, use 'standard deduction' = 24K and completely 'ignore' my 'Taxable portion' number.
I use 'General' category Income.

My Best Regards,

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

Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by nelsona » Thu Mar 28, 2019 2:53 pm

You should put all the taxes paid on the 1116. The 1116 form will limit the taxes itself, and give you a huge carry over.
For the deduction, you get to use the whole $75K, which, unless you have lots of other Cdn income, makes using the deduction the only way to go.

For 1116, The net foreign taxable income is 5K , not 295k. don't know where they would be getting the 269K from, but that is wrong, I suspect it is starting with the amount that is listed in line 1. This should be only the taxable 5k. which should get your a credit of about $800, maybe even less.

In any event, you are going to use the deduction.

Side: How did you come up with your Non-taxable portion of your RRSP.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

nelsona
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Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by nelsona » Thu Mar 28, 2019 2:54 pm

Other question: why isn't yoy tax paid exactly 1/4 of your gross withdrawal. the withdrawals and withholding tax were done on the same date(s), no?
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Lilia
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Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by Lilia » Thu Mar 28, 2019 3:02 pm

we've arrived to US in 2017 having RRSP as $295,888. That number I consider as non taxable.
Gross withdrawal in 2018(As of date of withdrawal) was $301,412
Taxable Ratio ($301,412 - $295,888)/$301412 = 0.018

That is why I think the Taxable portion is $301,412 * 0.018 = $5,523
Is that correct?

Lilia
Posts: 10
Joined: Tue Mar 26, 2019 11:56 pm

Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by Lilia » Thu Mar 28, 2019 3:07 pm

nelsona wrote:
> Other question: why isn't yoy tax paid exactly 1/4 of your gross
> withdrawal. the withdrawals and withholding tax were done on the same
> date(s), no?
it was done at the same date and withholding tax is 25% ($75315*100/$301412)=24.99 %)

Lilia
Posts: 10
Joined: Tue Mar 26, 2019 11:56 pm

Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by Lilia » Thu Mar 28, 2019 3:38 pm

and No, we do not have any other Canadian income.

nelsona
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Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by nelsona » Thu Mar 28, 2019 4:10 pm

Your non-taxable amount is not the market value on the date you arrived (or actually, the date you became taxable in US), it is the BOOK Value, or the cost basis, if you prefer.

If your account had an investment that you bought at $100, and it was $150 when you arrived, your non-taxable portion is $100, not $150. So you need to go back and find the BOOK value of the investments in your RRSP on the day you became taxable in US -- in US dollars at that day. your most recent statement before your arrived in US might have this in Cdn.

if this is your entire RRSP account, then the taxable portion is simply the total proceeds in the USD of that day minus the book value in USD when you arrived.

and 301412/4 = 75353 not 75315. Not much difference, but I'm sure the RRSP didn't tax you 24.99%, they taxed you 25%, unless there was a service charge. Just making sure your numbers make sense. Point being your income and your tax should be calculated using the same numbers, since they occur on the same transaction.

Just one thing to mention too, is that with such a big tax deduction, you will likely be hit by AMT (alternative minimum tax). the Cdn tax isn't going to help you much either way.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

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

Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by nelsona » Thu Mar 28, 2019 4:10 pm

Had you come here earlier, I might have suggested a slower drawdown of your RRSP, maybe even resulting in lower Cdn tax.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Lilia
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Joined: Tue Mar 26, 2019 11:56 pm

Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by Lilia » Thu Mar 28, 2019 6:00 pm

sorry, just one clarification on book value: my RRSP were a 5 years GIC with maternity year 2018.
I left Canada in 2017 when there was one year left.
I do have a statement how much money was on my account when I left.
On maternity day in 2018 I withdraw all the money and closed RRSP.
What will be considered as book value for that case:
1. Original amount I put in GIC 5 years ago
or
2. Amount listed on statement after 4 years (the time I left for US)?

Thank you!

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

Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by nelsona » Thu Mar 28, 2019 9:14 pm

The last stement before leaving, converted to US on moving day.

My concern was more if you had investments which had grown.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Lilia
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Joined: Tue Mar 26, 2019 11:56 pm

Re: How to enter RRSP withdrawal (NR4 with code 43) into US tax

Post by Lilia » Fri Mar 29, 2019 12:14 pm

Thank you very very much! Good bless you and people like you for helping others!

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