Canadian Income

JustAnotherID · Post by **JustAnotherID** » Sun Mar 16, 2014 11:02 pm

Hi,
I am a US PR my wife got hers last year and came to the US last year in January. She still worked for about a month for her Canadian employer and also liquidated her RRSP account after paying taxes and penalties.

Should I enter these in the W-2 forms section?o
Also about the conversion, how should I use the exchange rate? Date the paycheck is issued? Money went into the account?

nelsona · Post by **nelsona** » Mon Mar 17, 2014 4:12 am

I don't answer mechanical questions.

What "penalties" did your spouse pay for withdrawing her RRSP. There is only 25% tax.

JustAnotherID · Post by **JustAnotherID** » Mon Mar 17, 2014 3:43 pm

You are right, 25%. I don't know Canadian rules very much. Just trying to figure out if this needs to go to line 7 wages or line 21 Other incomes. since it's taxed by Canada already, how come my fed refund is dropped dramatically?
we are also filing forms 2555EZ and 8891.

Thanks.
Dan

JustAnotherID · Post by **JustAnotherID** » Mon Mar 17, 2014 3:50 pm

Forgot to mention, I was using a software so I am wondering if I properly took the foreign tax credit or did the correct foreign income exclusion. Do I still pay more taxes even though I paid them in Canada?

nelsona · Post by **nelsona** » Mon Mar 17, 2014 3:51 pm

The RRSP income is all reported on 8891 (line 7a/7b), an it will flow thru to 1040 line 16a and 16b pension income thru the software. She should elect to defer so that it is treated as pension income.

Esentially, none of her RRSP income should be taxable in US, since she sold it all very soon after moving. there are many threads which tell you how to determine what portion of her RRSP is taxable in US.

So, use the 25% Cdn tax as a deduction on schedule A instead of as a foreign tax credit.

This and using 2555 for her Cdn wages will reduce your overall tax.

nelsona · Post by **nelsona** » Mon Mar 17, 2014 3:52 pm

Has she prepared her Cdn departure tax return. That is more important.

JustAnotherID · Post by **JustAnotherID** » Mon Mar 17, 2014 4:17 pm

She has but it's not mailed out yet.

nelsona · Post by **nelsona** » Mon Mar 17, 2014 4:27 pm

And she has followed all the requirements of a departure return?

JustAnotherID · Post by **JustAnotherID** » Mon Mar 17, 2014 6:58 pm

Not sure, will ask her, thanks a lot.

JustAnotherID · Post by **JustAnotherID** » Wed Mar 19, 2014 12:33 am

Hi again, thanks for the great info, since she only worked in Canada for one month, she does not qualify for Foreign Earned Income Exclusion and therefore doesn't need to file form 2555, the income goes to line 21, is that right?

nelsona · Post by **nelsona** » Wed Mar 19, 2014 10:35 am

Incorrect. She worked in Canada ALL HER LIFE, including the first month of 2013, which qualifies her for 2555, based on the period from Feb 2012 to jan 2013.

Also, in any event, regardless iof you use 2555 or 1116. wages go on the wage line of 1040, even if they are foreign, same for all other types of income. They go on the line as if they were US-sourced.

JustAnotherID · Post by **JustAnotherID** » Wed Mar 19, 2014 12:27 pm

The part about her Canadian tax part: she paid her income tax on wages, paid 10% on one of her RRSP account(using Canadian address), 25% on another of her RRSP, and on her exit return she needs to pay another 2k(this is partially caused by RRSP distribution?), am I to add all these up and put into Schedule A?

Also, I participated in a SEP IRA with an employer last year, left and rolled over to an IRA, I think I don't need to report it on my tax return, is that correct?

nelsona · Post by **nelsona** » Wed Mar 19, 2014 1:50 pm

I'll let you figure the IRA questuion. That is not a cross-border issue.

The RRSP that was taxed at 25% should not go on her Cdn departure return. It is separate, the 25% is the final tax. The initial RRSP amount depends on whether she did this before or after she left canada. Since she is excluding her wages, the tax cannot be claimed on that.

If you do use her Cdn taxes on schedule A, it can only be tax that (a) she paid in 2013, (b) was not refunded, and (c) was not for income excluded on your 2013 return (ie. her Cdn wages).

I think you will find that it is better to exclude the wages using 2555.

Did your wife work after coming to US? If not there is a special manner in which to file her Cdn return that might get some of the 25% tax back.

nelsona · Post by **nelsona** » Wed Mar 19, 2014 1:51 pm

But, I won't be able to help you anymore on this. Look for 217 return in this borad.

JustAnotherID · Post by **JustAnotherID** » Wed Mar 19, 2014 5:47 pm

Thanks very much, understood, appreciate your tremendous help.