1040NR - how to allocate US source income

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elgoog
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1040NR - how to allocate US source income

Post by elgoog »

Hi,

I was reading through the Form 1040NR instructions and found that you can allocate income based on how much of it is US sourced. For my case, I only spent 80 days in the US in 2020 and the rest in Canada. My employer is US based and I worked for them for all of 2020 (only 80 days in the US, rest remotely in Canada) but they withheld US taxes for the entire year.

My question is where on Form 1040NR do I adjust my income to only allocate it for 80 days? Do I have to file some other form as well?

Thank you.
elgoog
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Re: 1040NR - how to allocate US source income

Post by elgoog »

Also how does the Article XV (Dependent Personal Services) Paragraph 2 of the treaty play into this? It states (in my example) that income derived from a US employer shall be taxable in US if the amount is more than USD $10000 or if the individual was in the US for less than 183 days and the employer is US based.

My amount is more than USD $10000 and my employer is US Based. Does this mean income sourcing doesn't apply and I still report the entire amount on my W-2 on 1040NR?
elgoog
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Joined: Thu Sep 19, 2019 9:40 pm

Re: 1040NR - how to allocate US source income

Post by elgoog »

Sorry, I meant

It states (in my example) that income derived from a US employer shall be taxable in the US if the amount is more than USD $10000 or if the individual is in the US for more than 183 days or the employer is US based.
nelsona
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Re: 1040NR - how to allocate US source income

Post by nelsona »

Did you make more than $10K in the days you worked in US, I srure hope so. So, that clause doesn;t apply.

You count the number of days you work all year, and the number you worked in US. That will be the ratio you report on 1040NR.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
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elgoog
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Re: 1040NR - how to allocate US source income

Post by elgoog »

Will do. Thanks, Nelsona,

And if I decide to file a Form 8833 with this, what should I use for the following:

1. Article
2. List the provision(s) of the limitation on benefits article (if any) in the treaty that the taxpayer relies on to prevent application of that article
nelsona
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Re: 1040NR - how to allocate US source income

Post by nelsona »

Article XV(1)
Just fill in the written part for the rest.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
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nelsona
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Re: 1040NR - how to allocate US source income

Post by nelsona »

But with a 1040NR, there are places to exempt income and list the article, No need for 8833 when filing 1040NR.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
elgoog
Posts: 38
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Re: 1040NR - how to allocate US source income

Post by elgoog »

That makes sense. So the simplest way is:
1040NR:
1. Line 1a with US Source Income
2. Line 1c with the rest of the income (I suppose you could call it Canada source income)
3. Schedule OI - for stating the tax treaty

No need to file 8833 then. I know that this will trigger a huge refund from IRS and a huge tax owing to the CRA since foreign tax credit is small.

I know that the tax paid is the same either ways but do you know if I can include all income (US and Canadian sources) on line 1a to get a smaller refund from the US and pay less Canadian tax? Asking because most of my funds are in the US and I will have to convert some huge amount to pay the CRA.

Thanks again.
nelsona
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Re: 1040NR - how to allocate US source income

Post by nelsona »

No, you can't. CRA has already advised those in your situation that they canot claim foreign tax credit on income earned while working in Canada due to covid.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
elgoog
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Re: 1040NR - how to allocate US source income

Post by elgoog »

I see. Thanks. I see there is some guidance here: https://www.canada.ca/en/revenue-agency ... ssues.html. Do you know which item I need to be looking at?
nelsona
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Re: 1040NR - how to allocate US source income

Post by nelsona »

Cross-border employment income.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
elgoog
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Re: 1040NR - how to allocate US source income

Post by elgoog »

It looks like there has been an update to this according to CRA's supplemental guidance: https://www.canada.ca/en/revenue-agency ... html#h_vii

VII. Supplemental Guidance - Section C. (Cross-border employment income) - Subsection (ii) Canadian Resident Employees

Canadian resident employees that work for a US employer:

For individuals in this situation, whose taxes continued to be withheld as if the income was earned in the United States, the CRA will provide an administrative concession in order to simplify the reporting obligations for those who so prefer. In such situations, the CRA will consider the employment income from the United States employer to be sourced from the United States for 2020. This means they can file their tax returns like they did in prior years and claim a foreign tax credit for amounts paid in the United States. Individuals who choose to file in this manner must maintain their records in case the CRA needs to confirm the amounts paid to the United States. Income that was not subject to withholding in the United States must be reported as if it was sourced in Canada. In addition, should any amounts paid to the United States be refunded at a later time, the employee must file an amended return adjusting the amount of the foreign tax credit claimed in Canada. Note this administrative concession applies only to individuals who, because of the travel restrictions, have been forced to perform their employment duties from their home in Canada instead of at the office of their United States employer.

Alternatively, an individual can use income sourcing rules according to the treaty
ellenclare
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Re: 1040NR - how to allocate US source income

Post by ellenclare »

Newbies can learn a lot thorough this post.
oliverfinn
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Re: 1040NR - how to allocate US source income

Post by oliverfinn »

Good for professionals too.
tylerkingston
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Re: 1040NR - how to allocate US source income

Post by tylerkingston »

Experts can still manage to learn a lot of significant stuff, through this.
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