Hi,
I am a dual Canadian/US citizen, living and working in Canada. In previous years I used Form 2555ez to exclude my Canadian income, however this year I am over the max exclusion amount and so I am attempting to use Form 1116 instead. In this past year I was in the US for work/conferences for a total of 12 days which is equivalent to about 4% of my general income. I excluded that income from line 1A, so when I work out Form 1116 I end up having to pay ~4% of the taxes calculated on line 44. This seems to line up with the example in Pub. 514. Does this mean there is no way to get credit for the taxes I already paid to Canada on this income earned while in the US? Aren't I then being double taxed on that income?
Thanks!
Form 1116 - Credit for taxes paid on days worked in US
Moderator: Mark T Serbinski CA CPA
I'm not answering your question, but I think there's yet another issue: you said you were going to use 1116 "instead" of 2555. I'm not an accountant, but I think you should seek professional advice about three things:
1) You could use 2555 to exclude as much as you can, and then use 1116 to take care of the rest (the procedure for that involves pro-rating the taxes you paid in Canada which you claim on the 1116).
2) If you do not use the 2555 at all, you have then "revoked" your choice of using it, and according to the 2555 instructions, you can't then re-choose to use the 2555 again until five years have passed.
3) If you use both 2555 and 1116, your excluded earned income will lower your adjusted gross income, which could be very helpful when filling out form 6251 for Alternative Minimum Tax.
1) You could use 2555 to exclude as much as you can, and then use 1116 to take care of the rest (the procedure for that involves pro-rating the taxes you paid in Canada which you claim on the 1116).
2) If you do not use the 2555 at all, you have then "revoked" your choice of using it, and according to the 2555 instructions, you can't then re-choose to use the 2555 again until five years have passed.
3) If you use both 2555 and 1116, your excluded earned income will lower your adjusted gross income, which could be very helpful when filling out form 6251 for Alternative Minimum Tax.
Thanks for your input. I have a few added comments:
1) I started doing it this way but from what I read online Form 1116 seems to always be recommended over Form 2555, and there did not seem to be any advantage to doing two, so I thought just doing one would cut down on the paperwork.
2) I was planning to revoke it, as I would just continue to use Form 1116 instead. I haven't heard of any downside to just using 1116, until your comment three...
3) I had to look up what Form 6251 was, because I have never had to file it before but it looks like I might have to this year. It seems like every year things get more complicated!
I know that my company will cover any taxes that I would have to pay for working in the US if it comes to it (as well as provide professional assistance which I am definitely going to look into) but I can't imagine there isn't a way to somehow get credit for the tax I paid in Canada on this work in the US!
1) I started doing it this way but from what I read online Form 1116 seems to always be recommended over Form 2555, and there did not seem to be any advantage to doing two, so I thought just doing one would cut down on the paperwork.
2) I was planning to revoke it, as I would just continue to use Form 1116 instead. I haven't heard of any downside to just using 1116, until your comment three...
3) I had to look up what Form 6251 was, because I have never had to file it before but it looks like I might have to this year. It seems like every year things get more complicated!
I know that my company will cover any taxes that I would have to pay for working in the US if it comes to it (as well as provide professional assistance which I am definitely going to look into) but I can't imagine there isn't a way to somehow get credit for the tax I paid in Canada on this work in the US!
I agree with filo. You should use 1116 only in addition to your regular use of 2555.
The wages ineligible for 2555 are (a) the amount earned above the annual limit, and (b) the amount considered earned in US. (a) is considered general limit income for 1116 purposes, (b) is considered "re-sourced by treaty" income, since Canada will not give you any tax credit for that US-sourced income. So you will need 2 1116's for your wages, along with any other for non-wage income.
But be aware that 1116 generally doesn't give much of a tax reduction, and since you did earn this income in US, you will probably have to pay some US tax.
As was mentioned, if you do not use 2555 you can't use it again for 3 years. However, if you have children, you probably should not be using 2555 if it prevents you from getting the child tax credit.
The wages ineligible for 2555 are (a) the amount earned above the annual limit, and (b) the amount considered earned in US. (a) is considered general limit income for 1116 purposes, (b) is considered "re-sourced by treaty" income, since Canada will not give you any tax credit for that US-sourced income. So you will need 2 1116's for your wages, along with any other for non-wage income.
But be aware that 1116 generally doesn't give much of a tax reduction, and since you did earn this income in US, you will probably have to pay some US tax.
As was mentioned, if you do not use 2555 you can't use it again for 3 years. However, if you have children, you probably should not be using 2555 if it prevents you from getting the child tax credit.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Hi,
I'm back again a month later after not yet succeeding in getting my company to get a professional to handle this for me (I have not met their minimum $10,000 earned in the US which is based on typical Canadian-citizen-only circumstances and I'm still arguing that there should be separate policies for dual citizens). Right now I am still unsure how to handle this "re-sourced by treaty" income, and I am unsure if I can claim a credit in Canada on any taxes I end up having to pay in the US on this. I'm not sure if this is asking too much, but I'm just going to go through what I've done so far and maybe you can let me know if this makes sense.
- I have roughly US$107,000 in income from my Canadian company but worked for 12 days in the US in 2013, which means ~$4,300 was earned in the US, and the remainder in Canada. I also have CDN bank interest, TFSA interest, and dividends from CDN stocks.
- I used 2555 to deduct the max of $97,600, so I am left with:
I'm back again a month later after not yet succeeding in getting my company to get a professional to handle this for me (I have not met their minimum $10,000 earned in the US which is based on typical Canadian-citizen-only circumstances and I'm still arguing that there should be separate policies for dual citizens). Right now I am still unsure how to handle this "re-sourced by treaty" income, and I am unsure if I can claim a credit in Canada on any taxes I end up having to pay in the US on this. I'm not sure if this is asking too much, but I'm just going to go through what I've done so far and maybe you can let me know if this makes sense.
- I have roughly US$107,000 in income from my Canadian company but worked for 12 days in the US in 2013, which means ~$4,300 was earned in the US, and the remainder in Canada. I also have CDN bank interest, TFSA interest, and dividends from CDN stocks.
- I used 2555 to deduct the max of $97,600, so I am left with:
.. sorry, continuing..
- I am left with cdn income of: 107,000-97,600-4,300=5100; my passive income of ~5,000; and re-sourced-by-treaty income of $4,300
- if I use separate form 1116's to exclude all of those (I'm not doing anything different on the form for the re-sourced-by-treaty than I would do on the general income form, so I'm not sure if that's correct, because otherwise i'm not sure why they have to be separated), I get about $750 credit for the general income, nothing for the passive, and ~$600 for the resourced.
- So back to Form 1040,, I have:
Total income - F2555 = ~14,500
Std deduction = -6100
Exemptions = -3900
taxable Income = ~4,500
Tax = ~1300
Foreign Tax Credit = ~1350, so net tax owing is zero.
So the biggest question is that it doesn't seem right to exclude the us-income the same as I would general income, but I'm not sure how else to handle it. And if I can't exclude it, and I end up owing taxes, is that somehow get credit in Canada for these taxes if I refile my Cdn taxes?
If you've made it this far, thank you!
- I am left with cdn income of: 107,000-97,600-4,300=5100; my passive income of ~5,000; and re-sourced-by-treaty income of $4,300
- if I use separate form 1116's to exclude all of those (I'm not doing anything different on the form for the re-sourced-by-treaty than I would do on the general income form, so I'm not sure if that's correct, because otherwise i'm not sure why they have to be separated), I get about $750 credit for the general income, nothing for the passive, and ~$600 for the resourced.
- So back to Form 1040,, I have:
Total income - F2555 = ~14,500
Std deduction = -6100
Exemptions = -3900
taxable Income = ~4,500
Tax = ~1300
Foreign Tax Credit = ~1350, so net tax owing is zero.
So the biggest question is that it doesn't seem right to exclude the us-income the same as I would general income, but I'm not sure how else to handle it. And if I can't exclude it, and I end up owing taxes, is that somehow get credit in Canada for these taxes if I refile my Cdn taxes?
If you've made it this far, thank you!
P.S. I just spent the last couple of hours reading commentary on Section 24 of the Treaty as it applies to income derived by us citizens who are residents of Canada. I now believe I have to go about it like this, although I'm very fuzzy on the details:
-Determine the amount the US could tax if I were not a US citizen (this I'm not sure how to do, but I have not researched yet) - Call this value A
- Calculate the US tax owing on worldwide income after the F2555 (section 911 exclusion) - Call this value B
- Calculate CDN tax on worldwide income (done previously in cdn taxes) - Call this value C
- Submit a credit for Canadian taxes for an amount of "A"
- Submit a credit for US taxes (I'm assuming Form 1116) for an amount of "B-A"
- So it should work out that your total credit is "A" + "B-A" = "B" or the US taxes owed on worldwide income. Does that sound right? If so, then I just have to figure out how this relates to all the forms...
-Determine the amount the US could tax if I were not a US citizen (this I'm not sure how to do, but I have not researched yet) - Call this value A
- Calculate the US tax owing on worldwide income after the F2555 (section 911 exclusion) - Call this value B
- Calculate CDN tax on worldwide income (done previously in cdn taxes) - Call this value C
- Submit a credit for Canadian taxes for an amount of "A"
- Submit a credit for US taxes (I'm assuming Form 1116) for an amount of "B-A"
- So it should work out that your total credit is "A" + "B-A" = "B" or the US taxes owed on worldwide income. Does that sound right? If so, then I just have to figure out how this relates to all the forms...
NONE of the US-sourced amount would be taxable in US if your were not a US citizen. That is because you did not meet the 183 day rule in any period.
Speaking strictly on wages, you will pay tax on 100% in Canada. You will then have a 1116 re-sourced form with the 4% and one on the portion of income above your 2555 exemption.
The re-sourced 1116 will use the smaller of the Cdn tax on that amount of wages, or the US tax owed on that amount. Same for the other 1116.
Speaking strictly on wages, you will pay tax on 100% in Canada. You will then have a 1116 re-sourced form with the 4% and one on the portion of income above your 2555 exemption.
The re-sourced 1116 will use the smaller of the Cdn tax on that amount of wages, or the US tax owed on that amount. Same for the other 1116.
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I just came to the same conclusion myself after reading the post by nohairleft. That's very tricky that canada will only give you credit for the amount of tax you would owe to the US if you were not a US citizen but if you're not a US citizen you wouldn't owe any tax unless you made over 10,000 in the states, so Canada doesn't give you any credit! But it actually makes things much more simple as I will not have to redo my canadian taxes to deal with any foreign tax credits. It looks like the way I have the 1116 filled out is correct then. This tax forum is absolutely invaluable for dealing with these tax issues - thank you so much!
"if you're not a US citizen you wouldn't owe any tax unless you made over 10,000 in the states, so Canada doesn't give you any credit!"
That is not the clause XV.2(a) that applies to you, since you were not employed by a US employer.
Your non-taxable earnings were unlimited since you were employed by the Cdn firm, and were not in US more than 1/2 the time in any 365 day period. XV.2(b)
That is not the clause XV.2(a) that applies to you, since you were not employed by a US employer.
Your non-taxable earnings were unlimited since you were employed by the Cdn firm, and were not in US more than 1/2 the time in any 365 day period. XV.2(b)
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing