IRS Taxes Canadian Income Twice?

Philmb · Post by **Philmb** » Fri Feb 06, 2015 3:35 pm

I have $160,000 gross income including $32,000 from a Canadian RRIF. I paid $8,000 in Canadian withholding taxes for the RRIF. Using form 1116, on which I include the RRIF income as Passive Income, my US Foreign Tax Credit is only $5,000. Is this pretty much standard?
Please and thanks for your always responsive reply! :?

MGeorge · Post by **MGeorge** » Fri Feb 06, 2015 4:14 pm

Your US tax credit on form 1116 will be limited by the amount of tax the US wants to charge you on this income. This means your effective tax rate in the US is lower than the 25% tax you had to pay Canada. Did it not wipe out your US tax liability on this income.

Also, RRIF income should be "general category". Passive is reserved for interest, dividend, capital gain, rent, and royalties.

nelsona · Post by **nelsona** » Fri Feb 06, 2015 11:48 pm

The tax credit is correctly calculated. It never wipes out US tax, since as MG sez, its on the effective rate, while the taxa is actually at your marginal rate.

And it is general limit income, not that that will change your result.

you do realize that of you only take 10% of your RRIF in a year the Cdn tax will only be 15%, which will help in the balancing of US and Cdn tax.

Philmb · Post by **Philmb** » Sat Feb 07, 2015 12:26 pm

Thanks to NelsonA and MGeorge both for your replies. Actually, I wish I only did take 10% of my RRIF in 2015, considering the exchange rate is so bad for CAD going to the US. I re-worked my 1116 form, and based on $160,000 worldwide income, of which 32,000 was CAD, and with itemized deductions of $15,000, ended up with a Foreign Tax Credit of $5500, with a $2200 carryover until 2015.

Thanks again for your consistent help!

nelsona · Post by **nelsona** » Sat Feb 07, 2015 5:52 pm

By the way, typically only a portion of a RRIF or RRSP withdrawl is taxable in US. Did you report this correctly.