How do I report my Canadian refund on U.S. return

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larklab
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Joined: Thu May 01, 2014 1:28 am

How do I report my Canadian refund on U.S. return

Post by larklab »

I am a U.S. PR employed by a Canadian employer.

I completed my Canadian 2013 taxes and filed and extension for my U.S. taxes. The Canadian government gave me tax refund for 2013. The time has come to start estimating my what I owe the U.S. (if anything) - how do I account for the refund (some of which is due to straight up being taxed too much at the time of payment, as opposed to deductions)?

If this has been discussed before, can someone point me to a url. I've searched, but haven't done well.

Thanks!
MGeorge
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Location: Canada

Post by MGeorge »

Hello,

Your refund on your Canadian return should be accounted for when you figure your foreign tax credit on your US return.

For your Canadian source income, some amount would have with withheld, let's say they withheld $20,000 of tax. If your refund was $2,000, then you would figure your foreign tax credit on your US return to be $18,000, since this is your total Canadian tax liability. Refund or no refund, what matters is how much tax you paid on that income. Remember, if there were amounts deducted for CPP and EI these may also be used as foreign tax credits on your US form 1116 as "general limit" category. I hope this helps.
nelsona
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Post by nelsona »

To clarify,
the CPP and EI would be used against the Cdn wages reported on your 1040 (yes, wages are general limit income for FTC purpses).

This would only be if one uses 1116 against wages, of course, rather than 2555. If one uses 2555 to exclude wages, then none of the income tax related to those wages, nor EI and CPP are ceditable on 1116.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

But, in case you are wondering, tax refunds from CRA are not treated the same as tax refunds, say, form your state, which are reported as income on your subsequent year's 1040.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
larklab
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Post by larklab »

I'm staring at form 1116 right now and have trouble figuring out where to report the amount I was refunded. Is this a reduction?
nelsona
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Post by nelsona »

Your refund is a non-entity, as I said before. Your TAXES are what was calculated on your Cdn tax return. What you overpaid earlier and were refunded doesnt matter.

You made $XX and were taxed $YY on your return. Forget the refund.
Split $YY among the various types of income you had: passive and general limit.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
larklab
Posts: 14
Joined: Thu May 01, 2014 1:28 am

Post by larklab »

Thanks nelsona.

What I'm trying to figure out is where to I write $YY on form 1116 (and potentially elsewhere on the return). I don't know where it belongs.
nelsona
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Post by nelsona »

In goes in Part II Foreign taxes paid or accrued. I don't help with filling forms, so that is all I will say about that.

You do need to split the $YY between passive (interest, etc) 1116, and geenral limit (wages) 1116, assuming you di not use form 2555.

You are using tax software, of course, right? This seems a bit over your head to be doing by hand. Software will guide you through.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

btw, filing for extension doesn't mean trying to understand your taxes in October. You've had 9 months to clear this up.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Phil Hogan, CA
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Post by Phil Hogan, CA »

That's the problem with extensions....give people a reason to put off filing.

Phil
Phil Hogan, CA, CPA (Colorado)
Cross-border investment advisor
http://philhogan.com
250-661-9417
Victoria BC
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