Hi,
We are trying to figure out my wife's taxes and it is somewhat complicated. Hoping someone can confirm how to do her taxes!
The facts:
- she is a US citizen, Canadian PR living in Canada since Sep, 2010.
- during 2011, she worked as a remote contractor for a US based company, earning just around 30k. They are issuing her a 1099 and her contract clearly states that she is a contractor while working outside of Canada. Other than 3 weeks at the beginning training in California, she worked the remainder of the time in Canada and went on a business trip to Europe.
- also during 2011, but after this previous work was completed, she worked as an employee here in Canada (just a few k in income)
- she obviously has to file both US and Canadian taxes.
What I think she is supposed to do:
1. She can claim a FEIE on her US taxes for at least all income except for the 3 weeks stateside, and possible even that?
2. As a 1099 contractor she would normally have to pay self-employment (FICA) taxes but she is exempt due to Totalization Agreement with Canada
3. Aside for the 3 weeks of stateside work, the remaining income is "canadian sourced" because that's where she was working/living as a self-employed person
4. as a result of 1, 2, and 3, the canadian government gets most of her taxes first (as opposed to paying US tax and claiming a foreign tax credit on her cdn taxes)
5. on the cdn side she declares the 1099 contractor income as sole-proprietor business income (minus expenses, etc)
6. she might have to pay a bit of US tax for the 3 weeks she was stateside and then claim that as a foreign tax credit on her CDN taxes
7. she might have to register for a GST number if the sole-propietor income is > 30k but she would not have to pay anything (she never invoiced them for it)
I guess what I am most confused about is:
a) who gets the tax on her income from the states when she was working in canada - canada or the us?
b) does she have to split the taxes up for the 3 weeks she was stateside vs the rest of the time in canada? or do the 3 weeks just count as a business trip or something ...?
Hoping someone can confirm/clarify things for us!
Thanks.
USC/Cdn PR with income from both US & Canada
Moderator: Mark T Serbinski CA CPA
Let me amend that. I'll get back to you on this, but I'm pretty sure sourcing is based on the permenent establishemnt, which is in canada.
I'll let you know.
I'll let you know.
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 for your comments! Page 16 of US publication 54 has an example of a mining engineer that seems to indicate that only the work done outisde of the US is foreign earned income, regardless of the fact that the Engineer is a bona fide resident of Canada. So I am leaning the other way a bit, though it seems odd that business trips to the states when a bona fide resident of canada would be taxed differently.
On the flip side, and as you say, the tax treaty seems to indicate that all of the us-sourced income is deemed to be canadian-sourced if one is a canadian resident ...
http://books.google.ca/books?id=EymIplR ... me&f=false
http://books.google.ca/books?id=EymIplR ... me&f=false
Well, you have to remember that US citizens and GCs are treated differntly under the treaty than others. And Pub 54 often deals soley on IRS regs, not treaty aspects.
A Cdn resident (non-US citizen) doesn't have to report any foreign-sourced income to IRS. A US citizen does.
The question is if that US-"based" income is eligible for FEIE.
There is a re-sourcing provision in the treaty that permits US citizens in Canada to re-source some US-sourced income to canada for foreign tax credit FTC purposes. You could definitely use this even if it was atributable to US, so there is no worry that you owe any IRS tax on this. It's just if you can avoid FTC and simply use FEIE on all of it that is the issue.
There is a technical explanation from IRS on this that I will dig up sometime.
A Cdn resident (non-US citizen) doesn't have to report any foreign-sourced income to IRS. A US citizen does.
The question is if that US-"based" income is eligible for FEIE.
There is a re-sourcing provision in the treaty that permits US citizens in Canada to re-source some US-sourced income to canada for foreign tax credit FTC purposes. You could definitely use this even if it was atributable to US, so there is no worry that you owe any IRS tax on this. It's just if you can avoid FTC and simply use FEIE on all of it that is the issue.
There is a technical explanation from IRS on this that I will dig up sometime.
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. So what you are saying is that the income earned from the 1099 contract while working in canada is definitely FEIE eligible, but that the income earned while stateside for 3 weeks is unclear as to whether one can use an FTC or FEIE??
Somewhat related, I am actually thinking about amending my wife's US returns for the previous 2 years from married filing separately (it was just easier!) to married filing jointly for a couple of reasons:
a) it may reduce her US tax substantially (to almost 0). I think. All of her income in 2009 and 2010 was earned before moving to Canada.
b) I have just received a green-card visa (I am a canadian citizen) and we will be moving to the states later this year so I am going to have to start filing us taxes anyways. though I would need to get an ITIN in the meantime for previous returns until getting a SSN.
Now, if I did that I would have to likewise MFJ for 2011 as well, for this year in question. But am I correct that it would not impact overall out-of-pocket tax for my wife because any benefits to filing MFJ on the us returns would be negated by Canada taking the difference anyways? (regardless of whether it's an FTC or FEIE above).
Thanks again!
Somewhat related, I am actually thinking about amending my wife's US returns for the previous 2 years from married filing separately (it was just easier!) to married filing jointly for a couple of reasons:
a) it may reduce her US tax substantially (to almost 0). I think. All of her income in 2009 and 2010 was earned before moving to Canada.
b) I have just received a green-card visa (I am a canadian citizen) and we will be moving to the states later this year so I am going to have to start filing us taxes anyways. though I would need to get an ITIN in the meantime for previous returns until getting a SSN.
Now, if I did that I would have to likewise MFJ for 2011 as well, for this year in question. But am I correct that it would not impact overall out-of-pocket tax for my wife because any benefits to filing MFJ on the us returns would be negated by Canada taking the difference anyways? (regardless of whether it's an FTC or FEIE above).
Thanks again!
Your goal while in canada is to produce a US tax return with 0 tax (in fact, if you have US kids, a return witha $1000 refund per child). As simple as you can for this should be your goal.
FEIE and FTC don't change Cdn tax in any event ,since the income is Cdn-sourced.
FEIE and FTC don't change Cdn tax in any event ,since the income is Cdn-sourced.
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
Ok thanks. We actually have a child on the way so that will impact 2012 taxes!
I just realized that if we file MFJ for 2011 (if we do so for 2009 and 2010) then we will have to use an FTC anyways because my income is well over 92k ... hmmm. I will have to look into that - not sure how that impacts her possible FEIE/FTC situation ... does it all get combined into 1 single FTC?
So my plan is to:
1. get an ITIN and file amended US tax returns as MFJ for 2009 and 2010 to reduce my wife's tax in the US to 0, before she moved to Canada in late 2010. (FEIE and FTC for income above 92k for myself).
2. file 2011 as MFJ and I will go with FEIE for her entire income and the first 92k of mine, then a FTC for the remainder of mine (and possibly an FTC for her 3 weeks stateside)
3. 2012 will again be complicated as I will file departure tax status in canada, we will file MFJ, and she will continue to receive canadian maternity benefits after having moved back (which is totally legit fyi) ... ugh
I just realized that if we file MFJ for 2011 (if we do so for 2009 and 2010) then we will have to use an FTC anyways because my income is well over 92k ... hmmm. I will have to look into that - not sure how that impacts her possible FEIE/FTC situation ... does it all get combined into 1 single FTC?
So my plan is to:
1. get an ITIN and file amended US tax returns as MFJ for 2009 and 2010 to reduce my wife's tax in the US to 0, before she moved to Canada in late 2010. (FEIE and FTC for income above 92k for myself).
2. file 2011 as MFJ and I will go with FEIE for her entire income and the first 92k of mine, then a FTC for the remainder of mine (and possibly an FTC for her 3 weeks stateside)
3. 2012 will again be complicated as I will file departure tax status in canada, we will file MFJ, and she will continue to receive canadian maternity benefits after having moved back (which is totally legit fyi) ... ugh
1. She should not be able to dreduce her US income tax to zero in the years she lived there. She may be able to reduce the tax (maybe) but only if she was married of course. There is a BIG reporting burden when you join her on her 1040 (RRSP, RESP. TFSA, mutual funds, truts, etc) that will cost you way more in fees than she might save on her 2009 or 2010 taxes.
2. Again, is it really necesary for you to file jointly. If her income is below the 2555 limit, she won't owe tax in US filing MFS. Your filing FTC will not alwats reduce income tax to zero.1116's are based on type of income. work,pension are 'general' invst income is 'passive'. Re-sourced income is "re-sourced". so you will have 3 1116s to file in you do MFJ.
3. this should be the first year you file MFJ. Her mat benefits should be flat taxed in canada once she leaves and reported in US.
2. Again, is it really necesary for you to file jointly. If her income is below the 2555 limit, she won't owe tax in US filing MFS. Your filing FTC will not alwats reduce income tax to zero.1116's are based on type of income. work,pension are 'general' invst income is 'passive'. Re-sourced income is "re-sourced". so you will have 3 1116s to file in you do MFJ.
3. this should be the first year you file MFJ. Her mat benefits should be flat taxed in canada once she leaves and reported in US.
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
[quote="nelsona"]1. She should not be able to dreduce her US income tax to zero in the years she lived there. She may be able to reduce the tax (maybe) but only if she was married of course. There is a BIG reporting burden when you join her on her 1040 (RRSP, RESP. TFSA, mutual funds, truts, etc) that will cost you way more in fees than she might save on her 2009 or 2010 taxes.
Yes we were married in 2009 and 2010. She had low income and paid about $800 and $1100 respectively each year in US tax. I simply used an online tax calculator with MFJ, 2 exemptions, and assuming all of my income would be FEIE/FTC, and under that scenario her taxes were pretty much $0 each year for a maximum savings of $1900.
When you say there are fees for my reporting RRSP, TFSA, etc what do you mean? By having to use someone's service or something else? Maybe I am not fully understanding the scope of the work/burden required. (though as per below I see how the 1116's can get nasty).
2. Again, is it really necesary for you to file jointly. If her income is below the 2555 limit, she won't owe tax in US filing MFS. Your filing FTC will not alwats reduce income tax to zero.1116's are based on type of income. work,pension are 'general' invst income is 'passive'. Re-sourced income is "re-sourced". so you will have 3 1116s to file in you do MFJ.
Yes, I understand that she won't pay any US tax for 2011 so MFJ makes no sense. I just figured the headache might be worth it to save the above $$ for the prior 2 years.
I didn't realize that the 1116 will not necessarily reduce all of my tax to 0. Most of my income is general with some capital gains/dividends/etc. After looking at this thread http://forums.serbinski.com/viewtopic.p ... 319ca5e143 I see how complicated the 1116's can get!
3. this should be the first year you file MFJ. Her mat benefits should be flat taxed in canada once she leaves and reported in US.[/quote]
Ok thanks for that.
I guess having to file complicated returns for 3 years to save at most $1900 is not with it. Your input has been greatly appreciated!
Yes we were married in 2009 and 2010. She had low income and paid about $800 and $1100 respectively each year in US tax. I simply used an online tax calculator with MFJ, 2 exemptions, and assuming all of my income would be FEIE/FTC, and under that scenario her taxes were pretty much $0 each year for a maximum savings of $1900.
When you say there are fees for my reporting RRSP, TFSA, etc what do you mean? By having to use someone's service or something else? Maybe I am not fully understanding the scope of the work/burden required. (though as per below I see how the 1116's can get nasty).
2. Again, is it really necesary for you to file jointly. If her income is below the 2555 limit, she won't owe tax in US filing MFS. Your filing FTC will not alwats reduce income tax to zero.1116's are based on type of income. work,pension are 'general' invst income is 'passive'. Re-sourced income is "re-sourced". so you will have 3 1116s to file in you do MFJ.
Yes, I understand that she won't pay any US tax for 2011 so MFJ makes no sense. I just figured the headache might be worth it to save the above $$ for the prior 2 years.
I didn't realize that the 1116 will not necessarily reduce all of my tax to 0. Most of my income is general with some capital gains/dividends/etc. After looking at this thread http://forums.serbinski.com/viewtopic.p ... 319ca5e143 I see how complicated the 1116's can get!
3. this should be the first year you file MFJ. Her mat benefits should be flat taxed in canada once she leaves and reported in US.[/quote]
Ok thanks for that.
I guess having to file complicated returns for 3 years to save at most $1900 is not with it. Your input has been greatly appreciated!
My apologies for the formatting ... let's try this again:
<i>1. She should not be able to dreduce her US income tax to zero in the years she lived there. She may be able to reduce the tax (maybe) but only if she was married of course. There is a BIG reporting burden when you join her on her 1040 (RRSP, RESP. TFSA, mutual funds, truts, etc) that will cost you way more in fees than she might save on her 2009 or 2010 taxes.</i>
Yes we were married in 2009 and 2010. She had low income and paid about $800 and $1100 respectively each year in US tax. I simply used an online tax calculator with MFJ, 2 exemptions, and assuming all of my income would be FEIE/FTC, and under that scenario her taxes were pretty much $0 each year for a maximum savings of $1900.
When you say there are fees for my reporting RRSP, TFSA, etc what do you mean? By having to use someone's service or something else? Maybe I am not fully understanding the scope of the work/burden required. (though as per below I see how the 1116's can get nasty).
<i>2. Again, is it really necesary for you to file jointly. If her income is below the 2555 limit, she won't owe tax in US filing MFS. Your filing FTC will not alwats reduce income tax to zero.1116's are based on type of income. work,pension are 'general' invst income is 'passive'. Re-sourced income is "re-sourced". so you will have 3 1116s to file in you do MFJ.</i>
Yes, I understand that she won't pay any US tax for 2011 so MFJ makes no sense. I just figured the headache might be worth it to save the above $$ for the prior 2 years.
I didn't realize that the 1116 will not necessarily reduce all of my tax to 0. Most of my income is general with some capital gains/dividends/etc. After looking at this thread http://forums.serbinski.com/viewtopic.p ... 319ca5e143 I see how complicated the 1116's can get!
<i>3. this should be the first year you file MFJ. Her mat benefits should be flat taxed in canada once she leaves and reported in US.</i>
Ok thanks for that.
I guess having to file complicated returns for 3 years to save at most $1900 is not with it. Your input has been greatly appreciated!
<i>1. She should not be able to dreduce her US income tax to zero in the years she lived there. She may be able to reduce the tax (maybe) but only if she was married of course. There is a BIG reporting burden when you join her on her 1040 (RRSP, RESP. TFSA, mutual funds, truts, etc) that will cost you way more in fees than she might save on her 2009 or 2010 taxes.</i>
Yes we were married in 2009 and 2010. She had low income and paid about $800 and $1100 respectively each year in US tax. I simply used an online tax calculator with MFJ, 2 exemptions, and assuming all of my income would be FEIE/FTC, and under that scenario her taxes were pretty much $0 each year for a maximum savings of $1900.
When you say there are fees for my reporting RRSP, TFSA, etc what do you mean? By having to use someone's service or something else? Maybe I am not fully understanding the scope of the work/burden required. (though as per below I see how the 1116's can get nasty).
<i>2. Again, is it really necesary for you to file jointly. If her income is below the 2555 limit, she won't owe tax in US filing MFS. Your filing FTC will not alwats reduce income tax to zero.1116's are based on type of income. work,pension are 'general' invst income is 'passive'. Re-sourced income is "re-sourced". so you will have 3 1116s to file in you do MFJ.</i>
Yes, I understand that she won't pay any US tax for 2011 so MFJ makes no sense. I just figured the headache might be worth it to save the above $$ for the prior 2 years.
I didn't realize that the 1116 will not necessarily reduce all of my tax to 0. Most of my income is general with some capital gains/dividends/etc. After looking at this thread http://forums.serbinski.com/viewtopic.p ... 319ca5e143 I see how complicated the 1116's can get!
<i>3. this should be the first year you file MFJ. Her mat benefits should be flat taxed in canada once she leaves and reported in US.</i>
Ok thanks for that.
I guess having to file complicated returns for 3 years to save at most $1900 is not with it. Your input has been greatly appreciated!