Here's my situation:
I am Cdn citizen; my wife is U.S. citizen and does not have an income. We both live in Canada.
Should the Gov't of Canada allow income splitting for all couples, as they're suggesting, how would this impact our reporting requirements in the U.S.? Until now, only my wife has been filing a tax return with IRS. If income splitting happens in Canada and we report split income to CCRA, would I also be required to file a return with IRS, along with all the ugliness of reporting RRSPs and other mutual fund investments?
Implications of Income Splitting in Canada
Moderator: Mark T Serbinski CA CPA
We would have to see exactly what gets split (so far I though only pensions were going to be allowed tgis treatment)
If your wife has no income, this would not change with splitting, as this only affects how income is REPORTED and TAXED, not who actually receives the income. So in your case, it doesn't much matter.
Where i might see a more onerous problem were if the US citizen was the income earner, and with splitting, would see his Cdn tax burden decrease and shifted to his wife. Then the taxes she would 'pay' would not qualify for credit on the US citizen's 1040, UNLESS they filed jointly.
While I have you, you might want, if you have kids that are US citizens, to make sure that she filing in such a way as o get the $1000/child tax credit for your wife -- even if it means joint filing a 1040. It is free money.
If your wife has no income, this would not change with splitting, as this only affects how income is REPORTED and TAXED, not who actually receives the income. So in your case, it doesn't much matter.
Where i might see a more onerous problem were if the US citizen was the income earner, and with splitting, would see his Cdn tax burden decrease and shifted to his wife. Then the taxes she would 'pay' would not qualify for credit on the US citizen's 1040, UNLESS they filed jointly.
While I have you, you might want, if you have kids that are US citizens, to make sure that she filing in such a way as o get the $1000/child tax credit for your wife -- even if it means joint filing a 1040. It is free money.
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My question is based partly on the assumption that CCRA shares data with IRS. Doesn't this suggest that if IRS sees that my wife *reported* income to CCRA via income splitting, IRS would expect to see the numbers on her U.S. return matching CCRA's? And might that not cause IRS to say we "must" now file jointly so they can match the numbers?
Could you elaborate on your comment about the tax credit "free money"? Since my wife pays no tax to IRS, I don't see how joint filing would help. In fact, it seems that it would only make my life more complicated because I would then be exposed to extra reporting requirements for myself as a U.S. tax person (e.g., RRSPs and mutual funds).
Could you elaborate on your comment about the tax credit "free money"? Since my wife pays no tax to IRS, I don't see how joint filing would help. In fact, it seems that it would only make my life more complicated because I would then be exposed to extra reporting requirements for myself as a U.S. tax person (e.g., RRSPs and mutual funds).
The answer is: nobody knows. The income splitting mechanism has not been discussed in any detail. It may very well be one line added on page 3 that is identified as "spousal income splitting". The general income splitting is unlikely to happen any time soon, though we will get a better idea of how it might work if enacted when we see how the pension income sharing is handled.Weiner wrote:My question is based partly on the assumption that CCRA shares data with IRS. Doesn't this suggest that if IRS sees that my wife *reported* income to CCRA via income splitting, IRS would expect to see the numbers on her U.S. return matching CCRA's? And might that not cause IRS to say we "must" now file jointly so they can match the numbers?
Of course, I would expect that the IRS will know of the change in rules and will be able to identify the "split" income versus that income directly earned.
IRS has had joint filing for years, and arequite capable of understanding the notion that income reported as a couple still comes from one or the other party.
As I said, the big worry might be how a REDUCTION in Cdn taxafects one's US return, especially now that anti-stacking removes much of the benefit ofFEIE.
As I said, the big worry might be how a REDUCTION in Cdn taxafects one's US return, especially now that anti-stacking removes much of the benefit ofFEIE.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing