Reporting OAS & CPP/QPP and Form 8833

[Buddy]

Nelsona,

With all respect, it is not that CPP/OAS/SS are, for Canadian residents, “not taxableâ€￾, it is that, according to the IRS, CPP/OAS/SS are “exempt from U.S. taxâ€￾. It is also not a matter of “howâ€￾ to report it. According to the IRS’s 1040 instructions, if income is exempt, it is not to be reported at all.

There is a difference between being “Not Taxableâ€￾ and “Exemptâ€￾. The IRS may indeed require that certain “nontaxableâ€￾ income be reported on a 1040. However, as stated in the earlier quoted 1040 instructions, the IRS does not require “exemptâ€￾ income to be reported. “Exemptâ€￾ means that, at least for the purposes of U.S. income tax, it does not exist.

If you’d care to read further, you may find IRS Publication 525, “Taxable and Non-Taxable Incomeâ€￾ helpful, where it states at p. 2: “Income which is taxable must be reported on your return and is subject to tax. Income which is nontaxable may have to be shown on your tax return, but is not taxableâ€￾ (which it then goes on to discuss). If you can provide any examples of “exemptâ€￾ (as opposed to “nontaxableâ€￾) income which is reportable, I’d be very interested.

I confess that I too initially confused “non-taxableâ€￾ and “exemptâ€￾ (a distinction uncommon in Canada). I also have to give credit where credit is due. In reviewing this thread, I noticed in your first post here (June 13, 2010): “Your OAS and CPP are exempt from US tax, per the article you cite. . . â€￾. I thought: “Exempt! That’s it! The issue is: “Is exempt income reportable? Eureka! Thank you Nelsona!â€￾

I do not recall “weâ€￾ ever having mentioned the fact that the IRS, by regulation, specifically waives use of 8833 for social security and public pension income, suggesting that the IRS would prefer to do without 8833 as a “courtesyâ€￾ gesture. In any event, I’m happy that, after all these many years, we are all now aware of this. (The IRS might appreciate a nice greeting card now and then, however.)

I think this forum exists to assist us in providing information to each other to help find our way through this maze. A week or two ago, I only believed with about 87% certainty that CPP income was not reportable, everything I’d seen from the IRS pointing in that direction. Thanks to you, Nelsona, that certainty has risen to 98% (& anything more K104XYZ hears from ETLA should cinch it). I’d never have done it without you.

Yes, one may include income on a 1040 which is not required, modify forms to accommodate unintended purposes, and file un-required forms in an attempt to cover every contingency. And, if all taxable income is coherently reported, there most likely will never be any complaint from the IRS.

CPP/OAS not being reportable is, however, in harmony with virtually everything I’ve seen in IRS literature, and I can think of nothing more elegant in this case than simply doing as the IRS has directed. That’s just my opinion, however, and I hope the information I have provided is useful in helping readers make their own decisions.

(I should also take this opportunity to add that the Canadian “Guaranteed Income Supplementâ€￾ (GIS) and “Allowanceâ€￾, being, under paragraph 5(b) of Treaty article XVIII, “not subject to Canadian taxâ€￾, are also exempt from U.S. tax).

[nelsona]

Tax-exempt interest is one obvious example of exempt income that must be reported.

You missed the discussion about the 'non-necessity" of 8833 in virtually all cases encountered by the common taxpayer was in the early 2000's, so don't feel bad about missing that.

You chose in the past, with admitted uncertainty, to not report your OAS/SS etc to IRS, and you have attempted to justify your decision. So be it. Sleep well, as I will when I continue to advise to report it on line 20.

Question. how are you building up your foreign tax carryforward for the Cdn tax you are paying on CPP and OAS? Should you move to US, it would be nice to havbe built up this genral limit foreign tax, as you could use it against the CPP/OAS you would noe be reporting on 1040, with no Cdn tax to write against it.
Just wondering.

[nelsona]

here is another:

On 1040NR, there is a line 17 discusses pension income.
When discussing what to include on 17a, it says nothing about eempt income, however, in determining 17b:

In most cases, the effectively
connected pension distribution will be
fully taxable in the United States, so
you must enter it on line 17b.
However, in some situations, you can
report a lower amount on line 17b.
The most common situations are
where:
All or a part of your pension
payment is exempt from U.S. tax,...

So there is a perfect example where exempt income is reported on the (a) portion of the line, and removed from the (b).

[Diskdoctor]

[quote="rafa02"]Unfortunately this does not seem to work with tax software (TaxAct). Reducing (excluding) income on line 21 changes the amount of taxable SS benefits. No doubt this would work for paper filed returns, but I really do not want to go back to paper filing.[/quote]

rafa02, did you ever resolve your problem of how to report SS benefits as zero in the TaxAct software? I found the same thing as you that adding a negative at line 21 impacts other calculations. I'm not seeing another way to resolve this without just leaving it out entirely which I would prefer not to do.

[rafa02]

No I did not find a way to do this. I do not report any CPP/OAS benefit and include a 8833 form informing the IRS. So far I have not had any question from the IRS.

[nelsona]

That is fine. The only drawbacj is that the Cdn tax associated with CPP/OAS cannot be claimed on the 1116 for the years you do not report it, which may be useful later, whne for example, the CPP/OAS is only taxed in US (but sourced in Canada).

[nelsona]

,,, when the taxpayer has moved to US.

[Diskdoctor]

rafa02, I posed the question of how to report SS benefits in Taxact to the Taxact support people. I'll paste the response below. They suggest to do as you have done and not report the income at all. As nelsona has pointed out this would then limit your foreign tax credit claim. What I may do to get around it is to report it on line 16a and try to add a note of explanation.

Dear TaxAct® Customer:

For Social Security recipients, the TaxAct program will calculate the taxable portion of the Social Security benefits reported on Line 20a of IRS Form 1040 U.S. Individual Income Tax Return based on Worksheet 1 from IRS Publication 915 Social Security and Equivalent Railroad Retirement Benefits, page 7.

If you reside in a country (listed below) that has an agreement with the U.S. regarding the non-taxability of Social Security retirement benefits, we would suggest the benefits be treated as other non-taxable income, thus not reported on the return.

The following information is found on page 5 of IRS Publication 915 Social Security and Equivalent Railroad Retirement Benefits (https://www.irs.gov/pub/irs-pdf/p915.pdf):

U.S. citizens residing abroad. U.S. citizens who are residents of the following countries are exempt from U.S. tax on their benefits.
Canada
Egypt
Germany
Ireland
Israel
Italy (You must also be a citizen of Italy for the exemption to apply.)
Japan
Romania
United Kingdom

Note that any link in the information above is updated each year automatically and will take you to the most recent IRS version of the document at the time it is accessed.

[nelsona]

Remember diskdr, that this thread is specifically about reporting CPP/OAS on 1040, not SS. It is very clear that SS should be reported on 20(a) and zeroed on 20(b),

But, to Intuit's response about "we would suggest the benefits be treated as other non-taxable income, thus not reported on the return." This logic is completely false.

From the same document they supposedly looked at:

https://www.irs.gov/publications/p915/ar02.html

Benefits not taxable. If you are filing Form 1040EZ, do not report any benefits on your tax return. If you are filing Form 1040 or Form 1040A, [which all Cdns filing a 1040 would have to anyway]

***report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a.***

*** Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b.***

If you are married filing separately and you lived apart from your spouse for all of 2015, also enter “Dâ€￾ to the right of the word “benefitsâ€￾ on Form 1040, line 20a, or Form 1040A, line 14a.

so, for SS payments to Cdns, Intuit is not following Pub 915, if it doesn't allow you to zero out 20(b).(I'd say, it should do it automatically).

I'd be curious if taxact would let you.

[nelsona]

and just to put to rest what need s to be done for CPP and OAS:

same reference says:

Canadian or German social security benefits paid to U.S. residents. Under income tax treaties with Canada and Germany, social security benefits paid by those countries to U.S. residents are treated for U.S. income tax purposes as if they were paid under the social security legislation of the United States. If you receive social security benefits from Canada or Germany, ****include them on line 1 of Worksheet 1, shown later.*****

and that work sheet line 1, says:

Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Also ***enter this amount on Form 1040, line 20a, or Form 1040A, line 14a***

so, there is no doubt that SS/OAS/CPP/QPP/GIS all get reported on line 20(a) whether you live in Canada or US.

[wichitalineman68]

[quote="nelsona"]That is fine. The only drawbacj is that the Cdn tax associated with CPP/OAS cannot be claimed on the 1116 for the years you do not report it, which may be useful later, whne for example, the CPP/OAS is only taxed in US (but sourced in Canada).[/quote]

What makes you think that the IRS would allow this carryforward of foreign taxes paid on US-exempt income? To be sure, the IRS is going to allow foreign tax credits relating to taxable income, but where is it written that they will allow taxes paid on non-taxable/exempt income to be claimed as a credit? (I do, however, agree that a taxpayer can get away with this practice unless and until some IRS agent digs deeper to question the carryforward amounts).

Your conclusion that " there is no doubt that SS/OAS/CPP/QPP/GIS all get reported on line 20(a) whether you live in Canada or US" is not supported by the guide you cite, at least for US Citizens resident in Canada in terms of CPP/OAS/GIS. The passage you quoted instructs US residents on how to report.

Nowhere in any IRS publication - including 915 -are US citizen residents of Canada instructed to report CPP/OAS/GIS benefits on line 20 (or anywhere else on a 1040 for that matter). Indeed, they are instructed that the income is specifically exempt from US tax by treaty. Further, the instructions for form 1040 clearly state that exempt income need not be reported as a general rule, absent specifically outlined exceptions. There is no outlined exception in this instance anywhere that I have seen.

[nelsona]

The reference showed that SS income is EXEMPT from IRS tax, and is also to be reported on line 20a. Is it that much of a stretch of logic to say that CPP/OAS/GIS income, which is also exempt, should (or if you prefer, can) be reported on 20a?

As for what TAX is eligible for FTC on 1116, that is well known -- ANY foreign tax not related to REPORTED income (whether taxed or not), that has not been specifically exempted using FEIE. That is the only exception.

You may of course choose to do what you wish.

[nelsona]

The Cdn tax on SS, of course , is not ftc eligible, since it is not foreign sourced income. But the tax on CPP/OAS/GIS including clawback most certainly is.

[nelsona]

worksheet 1 includes information about 2555, so it applies to US citizens living abroad.