US Resident, Spouse employed in Canada

sarahc · Post by **sarahc** » Sun Mar 08, 2015 7:33 pm

Hi,

Thanks for maintaining this forum, it has a lot of great information.

Here is my situation, can you please help me with the questions below?

Situation:
I work in NY, my US income is significantly higher than my husbands.
My husband works remotely for an employer in Ontario. He is in the US for most of the year so will be filing as a resident in the US and deemed non-resident in Canada.

CA Filing:
First file husbands taxes in Canada so we get the correct number for NY state deductions.
File as a deemed non-resident since we are filing as a resident in the US.

US Filing:
We are filing a MFJ 1040 application with a 1116 to exclude my husbands foreign tax paid.

(Q1) Should my husband file a departure return this year since he will be in the US for most of the time going forward?

(Q2) Can EI and CPP payments be used as tax credits on the 1116 or somewhere else? If so how do I do this?

(Q3) When filing US taxes, I noticed that our state taxes payable increase significantly when I add my husbands income to TurboTax. Should I be doing MFS instead or am I not putting in the foreign taxes paid correctly? (Details below).

After putting my income into TurboTax I had a sizable Federal and State refund. After adding my husbands relatively small income I lost half of the Federal refund and have taxes owing for State. I see the 1116 deducted taxes paid on my Federal, but I do not seem to be getting any deductions for my foreign taxes paid on my state return.

Q3 is what really worries me, it is taxing my husbands income at about 30% which doesnâ€™t seem right.

Any input will be greatly appreciated, thanks for your time.

nelsona · Post by **nelsona** » Sun Mar 08, 2015 10:54 pm

Fist things first. As he officially left Canada in a past year. He can't file as a non-resident until he files departure return in a previous year.

There is also problem with how he is working (or more correctly, how he is being paid), since his income is NOT Cdn-sourced. he works and lives in US, and he should be taxed in US FIRST on this income, and pay US payroll tax, not Cdn EI/CPP. He really shouldn't have to file in canada at all. He neddsto be a US employee or a contractor.

sarahc · Post by **sarahc** » Mon Mar 09, 2015 9:03 pm

Hi nelsona,

Thanks for the information. To clarify, my husband only moved to the US in 2014. We maintained a home in Canada in 2013. Does this mean we can just file a departure return this year?

We will ask his employer to change his status to a US employee or contractor. But for this year does that mean we will just not be able to claim the EI and CPP credits?

nelsona · Post by **nelsona** » Tue Mar 10, 2015 8:28 am

Well, you should have filed YOUR departure return in 2013, so that you did not have to report your US income to canada. He left in 2014, so his departure return is in 2014.

sarahc · Post by **sarahc** » Tue Mar 10, 2015 10:50 pm

Thanks nelsona -- I did file my departure return in 2013, so I won't be filing in Canada this year.

In terms of filing my husbands taxes in the US, can the EI or CPP payments be included in foreign tax paid?

Also, do you why my NY state tax is so high when I add my husbands income? It looks like we are being taxed on his entire income for NY state.

nelsona · Post by **nelsona** » Wed Mar 11, 2015 12:21 am

Each state is different, but NY no doubt has a part-year resident return. You aren't supposed to include his income from before he became a NY resident. Remember though that work he did in NY is considered US-sourced, and not eligible for any tax credit.

Properly paid EI and CPP are considered taxes eligible for foreign tax credit. Again, however, the work he did in US is not foreign income, so can't use foreign tax credit.