Credit for taxes paid to US for Canada return

GTAresident · Post by **GTAresident** » Mon Dec 14, 2009 10:28 pm

For part year for which I was resident of Canada in 2009, one can get credit for US paid taxes. My pay stub shows 4 types of taxes
1) Federal tax
2) State tax
3) Social security
4) Health

Which of above taxes are considered eligible for credit for part year Canada taxes?

nelsona · Post by **nelsona** » Tue Dec 15, 2009 6:59 am

I a ssume by "Health" you mean medicare, and not private health insurance.

If so then they all are. However, what you can use on your return is not what is on your stubs. Fed and state tax is only determoned on your fed and state tax return.

So, when you do your US taxes, you will figure out what your fed and state taxes are for 2009, as well as your overall wages and other income.

The fed abd state tax you can use will be to the same proportion as the wages you report in canada. If you made $1000 in US income and paid $10 fed and 5$ state tax, and the portion of wages you must report in canada is $200, then you get to use $2 of fed tax and $1 of state tax.

Same idea for SS and medicare, ecept only the wage portion is used to come up with teh Cdn portion.

GTAresident · Post by **GTAresident** » Wed Dec 16, 2009 11:08 pm

Right. I was refering to my May 09 paystub from US employer which shows cumulative taxes paid for the year upto that month. This month happens to be my month for which I was resident of Canada.

Thanks

nelsona · Post by **nelsona** » Wed Dec 16, 2009 11:27 pm

No, you must calculate the tax at year end, prorated.

GTAresident · Post by **GTAresident** » Fri Dec 18, 2009 10:43 pm

Nelsona- Please clarify since I did not fully understand your statement

My tax deduction during the year is not uniform. More tax was deducted upto May 09 while I was resident of Canada since my family was there and I could not claim their exemptions on W4.

After we all came to US, I invested heavily 401K to reduce tax . So on 2009 1040 do I take a ratio of 5/12 times of
1) Total income
2) Total taxes paid- Federal, state, Social security & Medicare
3) Total 401K paid towards RRSP contribution subject to max allowable from 2008 CRA return?

Thanks

GTAresident · Post by **GTAresident** » Fri Dec 18, 2009 10:44 pm

Error. I meant Canada return and not 1040.

nelsona · Post by **nelsona** » Sat Dec 19, 2009 7:28 pm

Tax withheld is NEVER accepted by Canada as allowabel foreign tax. It must be final tax determiend on your tax return.

1)To determine what INCOME to report on your Cdn return, you take the income earned before departure (which would be the taxable income shown on your May paystub PLUS any 401(k) contribution you made by that date).

2)To determine the US tax that you are allowed to then claim towards the foreign tax deduction on your Cdn tax return, you must complete your US and state tax return. You may then use US tax at the same proportion of US income you declared on your Cdn retrun. If you reported 37.5% of your income, you can use 37.5% of your tax. Similarly for SS and medicare, you can use an ammount to the same percent of the wages you reported on your Cdn return.

3) For RRSP deduction you can use whatever 401(k) contributions you made up until May plus any RRSP contributions you made up until Feb 2010, up to your 2009 maximum. I'm of the opinion that you cannot use 401(k) contributions made after you become US resident, since you are not reporting the corresponding income.

GTAresident · Post by **GTAresident** » Sun Dec 20, 2009 12:11 am

Nelsona- Thanks for detailed clarification.

Does this mean that when I submit Canada return, I have to also submit to CRA copies of US returns (both) as well as W2 as well as all pay stubs from US employer when I was resident which happens to be end May 09?

nelsona · Post by **nelsona** » Sun Dec 20, 2009 8:11 am

You are required to submit 1040 and W-2. That is in the instructions. Not paystubs however. I would keep them in case they ask, like any other documentary evidence of income,deductions and credits.

bruce · Post by **bruce** » Mon Dec 21, 2009 9:39 am

Does the CRA only require a copy of the signed 1040 (i.e. 2 pages) in order to get FTCs for US tax paid? Or do they also want to see the full US return with all the attachments (e.g. schedules, forms, etc)?

Greg · Post by **Greg** » Mon Dec 21, 2009 11:17 am

[quote="bruce"]Does the CRA only require a copy of the signed 1040 (i.e. 2 pages) in order to get FTCs for US tax paid? Or do they also want to see the full US return with all the attachments (e.g. schedules, forms, etc)?[/quote]

For the past eight years I have just been sending my 1040 (2-pages) and W2, no 1040 attachments. The 1040 I send is just a second copy printed from Turbo tax and not signed. Keep all attachments if they want them they will ask for them.

Greg · Post by **Greg** » Mon Dec 21, 2009 11:22 am

Almost forgot, I also attach a seperate piece of paper that I title Slip Summery. It shows my SIN#, total foreign income and total foregin taxes payed (From 1040 NOT PAY STUB) and the exchange rate used in my calculations.