CPP or US social security taxes on self-employment income
Moderator: Mark T Serbinski CA CPA
CPP or US social security taxes on self-employment income
Since September 1, 2002, my son has been living in the US under a student visa. He has worked on university-approved projects as both an employee and as an independent contractor. For up until 2007, he has filed 1040s. For 2007 he filed both a 1040 and a 1040NR. In 2008 and 2009, he has filed 1040s. He has also filed Canadian tax returns as a factual resident of Canada. Up until 2009, he has shown his net self-employment income as other income and therefore not subject for CPP. This has clearly been disclosed on the returns and there never has been a problem. For 2009, due a faulty reading of IC84-6, he properly showed his self-employment income. He has now been assessed for 2009 CPP despite paying US self-employmeny income. How does he clear up this mess?
is your son still on a student visa? If so, he should be paying only CPP only on his self-employemnt income. If not, he is no longer a resident of canada and should only be reporting in US, and paying SE tax there, and not even reporting income in canada\, period.
The "factual resident" filing is no longer the preferred method, and is sending a conflicting message that your son still lives in canada.
The "factual resident" filing is no longer the preferred method, and is sending a conflicting message that your son still lives in canada.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
So, correctly he should be paying CPP on his self-employment income (and optionally on his student income).
He should first catch up his cpp on those missed years, and then file an amended 1040NR (using form 1040-x) to show his self-emplyemnt tax as zero. He may be required to provide a compliance letter from CRA to denote that he is in fact paying CPP on his self-employment income.
He should first catch up his cpp on those missed years, and then file an amended 1040NR (using form 1040-x) to show his self-emplyemnt tax as zero. He may be required to provide a compliance letter from CRA to denote that he is in fact paying CPP on his self-employment income.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks again for your reply. However, I have found an article by IRS , (http://www.irs.gov/businesses/small/int ... 27,00.html) last paragraph under Self-Employment Tax Liability, that seems to indicate that my son is subject to self-employment tax.
His self-employment did not violate his non-immigrant status (according to the university he attends) and he is a resident for tax purposes because he has lived in the US for more than five years.
Your comments would be most appreciated.
Thanks.
His self-employment did not violate his non-immigrant status (according to the university he attends) and he is a resident for tax purposes because he has lived in the US for more than five years.
Your comments would be most appreciated.
Thanks.
The totalization agreement still overrides this, in my opinion. According to you in your first post, he is NOT a US tax resident.
Remember that little in the IRS website or the tax code takes into account tax treaties, and especially does not account for the totalization accord (the page you referenced even says this).
If your assumption that he is still a Cdn resident is wrong, then the remedy is to STOP FILING AS A CDN RESIDENT, as I said at the outset.
So, when I askeed earlier, "is your son still on a student visa", I should more correctly stated "Is your son still on a student visa AND is he still exempt " The answer, since he has been in US five years, and since his ties in US outweigh his Cdn ties, and since his income is now subject to US taxation, he has no reason to be considered tax resident in canada.
Remember that little in the IRS website or the tax code takes into account tax treaties, and especially does not account for the totalization accord (the page you referenced even says this).
If your assumption that he is still a Cdn resident is wrong, then the remedy is to STOP FILING AS A CDN RESIDENT, as I said at the outset.
So, when I askeed earlier, "is your son still on a student visa", I should more correctly stated "Is your son still on a student visa AND is he still exempt " The answer, since he has been in US five years, and since his ties in US outweigh his Cdn ties, and since his income is now subject to US taxation, he has no reason to be considered tax resident in canada.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks. What I forgot to say in my first post is that his status for US tax purposes changed on Sept 1, 2007 from nonresident to resident since his five year period expired on that date. That is why he changed filing from a 1040NR to a 1040. He still continues to file Canadian taxes (no taxes payable) because he has not severed all his ties to Canada.
I assume his next step is to file a Notice of Objection to the Notice of Assessment form CRA in which they demand CPP payments for 2009.
Thanks again.
I assume his next step is to file a Notice of Objection to the Notice of Assessment form CRA in which they demand CPP payments for 2009.
Thanks again.
He does not have to sever his ties in canad to be non-resident. he is a deemed non-resdient of US by treaty. Period.
he should noyt be filing in canad. he should be amending his return for 2007, and rescinding his retuirns for all future years.
he should noyt be filing in canad. he should be amending his return for 2007, and rescinding his retuirns for all future years.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best