Claiming RRSP contributions on US Tax Return

pmoan · Post by **pmoan** » Fri Jun 15, 2012 9:47 am

Hello -

I have a follow-up question to a 2010 posting regarding whether or not RRSP contributions are deductible on a US tax return.

Nelson pointed out that "only employee RRSP contributions made througha Cdn employer planare deductible."

I am a US citizen who is self employed in Canada. I make self-employment CCP payments and report business income I earn on the T2125. I also report GST/HST payments. I am not yet, however incorporated. This is a sole proprietorship.

I've been told that my RRSP contributions may not be deductible on my US tax return. My sense is my RRSP contribution should be deductible since I am a Canadian employer. (i.e. self employed).

I wanted to confirm that this is a different case than the 2010 posting where the person making the inquiry was employed in the US.

Regards,
Patrick

nelsona · Post by **nelsona** » Fri Jun 15, 2012 10:25 am

No, these remain personal RRSP contributions so are not eligible for deduction in US. There is no Cdn equivavlent to SEP plans in US, if there were, you would need to set one up for yourself for the RRSP to be eligible.

Remember though that your self-employemnt income (including the portion that you contributedto an RRSP) is eligible for foreign earned income exclusion, using form 2555 ,and that you are not subject to SE tax.

pmoan · Post by **pmoan** » Fri Jun 15, 2012 11:03 am

Thanks for the information. It's unfortunate (for me) that I'm not considered a "Canadian employer". Two questions follow:

1) Any sense of whether I'd be able to deduct these in the future if I were to incorporate?

2) Any sense of why a self-employed person in Canada (i.e. current status) is treated differently from a person working for a Canadian firm? It's as if self-employed persons are penalized (compared to folks working for "Canadian" employers")

Regards,
Patrick

nelsona · Post by **nelsona** » Fri Jun 15, 2012 11:34 am

Easy there, fella. RRSPs were not deductible on 1040 for ANYONE 3 years ago, so its not quite 'favoritism' at work. Besides, you aren't paying tax in US in any event, so why does it matter?

As I said, if you can set up an employer-sponsored RRSP for your company, then your contributions, made through your wages will be eligible, just like any other employee. Canada needs to catch up on the type of plans: a TFSA is not a Roth, for example. And self-employed don't have a special RRSP plan (that I know of), unlike US). proabaly because IRA's are so low limited while RRSPs are not.

But self-employed are usually counseled to pay themeselves in dividends rather than wages, since the RRSP effect is not tha tgreat.

nelsona · Post by **nelsona** » Fri Jun 15, 2012 11:36 am

The deductible RRSP wa snever a key benefit in the new treaty, hardly anyone benefits from it. the key benefit was the 401(k) deductibility for Cdn residents working in US.

pmoan · Post by **pmoan** » Fri Jun 15, 2012 12:42 pm

Thanks. This is helpful.

As it turns out, my foreign tax credit this year is not enough to offset my US tax burden, so I owe the IRS a bit of money this year. ( I'm circling back with the individual who did my taxes to understand this better as it seems unfathomable to me that I'd ever owe taxes to the IRS given higher marginal tax rates.)

Thanks again for your prompt replies here on the forum. Much appreciated.

nelsona · Post by **nelsona** » Fri Jun 15, 2012 2:40 pm

I'm quite sure there is a mistake on your 1040, unless you had US-sourced income OR you put so much RRSP (more than your one-year amount)

Once you add CPP and EI to your fed and prov taxes, there is no way that fed-only IRS return should have tax on it.
You should be getting 1000/child back, in fact.

Gillian · Post by **Gillian** » Thu Jun 28, 2012 3:18 pm

Where can one claim employee RRSP contributions made througha Cdn employer plan on the 1040 :?:

nelsona · Post by **nelsona** » Thu Jun 28, 2012 10:42 pm

You would deduct it from your wage line (and attach an 8833 to explain). Remember that you can only deduct upto the yearly 401(k) maximum for your age, regardless of ho,w much you contribute through work.