Need my son report RESP EAP in tax return?

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snowbird
Posts: 29
Joined: Sat Mar 13, 2021 8:37 pm

Need my son report RESP EAP in tax return?

Post by snowbird »

My son cashed out EAP from RESP account, get NR4 slip with non-resident tax withdrawal.
By discussion, I know he needn't file 3520.
Need he report EAP in 1040 tax return?
Lrod373
Posts: 22
Joined: Tue Jan 16, 2018 4:37 pm

Re: Need my son report RESP EAP in tax return?

Post by Lrod373 »

He certainly needs to report it, I know that form 1116 is involved because the Foreign Tax Credit. I just don't know what "kind" of income to enter it as. IS it dividends? capital gains (most likely). A clarification would be highly appreciated. The last thing anybody needs is an IRS buboo, specially since this will be in my kid's 1040.
snowbird
Posts: 29
Joined: Sat Mar 13, 2021 8:37 pm

Re: Need my son report RESP EAP in tax return?

Post by snowbird »

We already report RESP income in annual tax return, not sure if need report EAP again, since tax is already paid every year.
Lrod373
Posts: 22
Joined: Tue Jan 16, 2018 4:37 pm

Re: Need my son report RESP EAP in tax return?

Post by Lrod373 »

Well, your son will get an NR4 with the EAP distribution and the 25% tax withehld and Code 24 in box 14. This slip will certainly go to the IRS as income, so I am certain that it must be reported. I just can't figure out as what type of income since it is a mix of mutual funds, dividends but it is also a tax sheltered account. Form 1116 is where you claim the Foreign Tax Credit, but I am not sure where to report the income or better said what "type" to use.
snowbird
Posts: 29
Joined: Sat Mar 13, 2021 8:37 pm

Re: Need my son report RESP EAP in tax return?

Post by snowbird »

Find a RBC document

Where someone else is a subscriber and/or contributor to
the RESP, and the RESP is a foreign grantor trust in respect
of such persons (as discussed earlier), a U.S. beneficiary
is not subject to U.S. income tax when they receive a
distribution from the RESP, provided the necessary U.S. tax
filings have been made.

https://ca.rbcwealthmanagement.com/docu ... c407a6943d
Lrod373
Posts: 22
Joined: Tue Jan 16, 2018 4:37 pm

Re: Need my son report RESP EAP in tax return?

Post by Lrod373 »

From the headline of the article
---------------------
This article is intended for U.S. citizens and other persons
considered to be U.S. residents for U.S. income tax and U.S.
transfer tax purposes WHO RESIDE IN CANADA.
---------------------------------
nelsona
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Re: Need my son report RESP EAP in tax return?

Post by nelsona »

A US person residing in Canada has the same obligations when living in US. The information applies to US taxpayers regardless of where they reside.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Lrod373
Posts: 22
Joined: Tue Jan 16, 2018 4:37 pm

Re: Need my son report RESP EAP in tax return?

Post by Lrod373 »

True enough... still the question remains.. does that NR4 with code 24 needs to be reported, if yes, how?
complete
Posts: 23
Joined: Wed Mar 04, 2015 12:02 pm

Re: Need my son report RESP EAP in tax return?

Post by complete »

I just noticed this thread. I posted a similar question.
I'm thinking that the NR4 with code 24 doesn't need to be reported on the child's or the parents returns as long as it has been used for qualified school expenses and as long as it has been classified as a 'grantor trust' and taxes have been paid over the years.
It would be great if an expert could confirm my approach.
complete
Posts: 23
Joined: Wed Mar 04, 2015 12:02 pm

Re: Need my son report RESP EAP in tax return?

Post by complete »

Can anyone confirm my approach mentioned that this NR4 for an RESP does not need to be reported on US taxes for the parent or child given that the RESP is a school savings plan and the funds were used for schooling expenses.
nelsona
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Re: Need my son report RESP EAP in tax return?

Post by nelsona »

It does need to be reported on his US tax return. It is income.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
complete
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Re: Need my son report RESP EAP in tax return?

Post by complete »

Thank you.
What type of income would he classify this as in the US?
Its an NR4 income code 24 for RESP.
Would he classify this as interest that goes on a 1099-INT?
If not, what would be an appropriate classification of this passive income received?

Also since its a foreign education plan I assume that he doesn't need to fill out any 3520 or 3520A correct?

Thanks in advance.
nelsona
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Re: Need my son report RESP EAP in tax return?

Post by nelsona »

It does not require 3520. If it did, you would have been filling it all along. nit just when he withdrew money.

As per the instuctions on 1040, it goes on the wage line.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
complete
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Re: Need my son report RESP EAP in tax return?

Post by complete »

Thank you Nelsona!
So if that the case, as long as the NR4 RESP payment, along with any other sources of income, amount to >$12550 then an income tax filing is required, correct?
If this NR4, and other income, is less than the $12550 then no 1040 would be required by him and he wouldn't need to show the NR4 income, right?

I assumed this was considered passive income for some reason.
nelsona
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Re: Need my son report RESP EAP in tax return?

Post by nelsona »

If he does not meet the reporting thresshold when including world income, he does not have to file.

However, if he claimed as your dependent, threshold is much lower, like $1,200 plus earned incomed.

So you should at least fill a return for your son, including all income. If he earned over 1200 of investment income, he may be taxable.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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