Canadian citizen living in Michigan commuting to work in Ontario, Canada. File US 1040, MI1040 and Canadian non-resident return. Only income is Canadian source T4 income.
Does Michigan allow a foreign tax credit for the amount of tax paid to Canada?
Line 18a of the MI1040 seems to allow it (Income Tax Imposed by government units outside Michigan).
Form 777 Province also seems to accommodate this (MICHIGAN Resident Credit for Tax Imposed by a Canadian). Instructions state:
The maximum credit for tax imposed by a Canadian province is the smaller of:
• Michigan tax due on the Canadian income, or
• The provincial tax you did not claim for credit on your U.S. Form 1040.
How would you ever know what amount of federal vs. provincial tax you claimed on the 1116; you normally just lump them both together? I assume you must have to prorate the tax between federal and provincial; and I’m guessing it wouldn’t be advantageous to only claim the federal tax on the 1116 so you could use the provincial tax on the Michigan return? Furthermore, would I not generally use all of the foreign tax credits on the 1040 if my only income was Canadian source income? In other words, there wouldn’t normally be any leftover to claim on the Michigan return anyway (regardless if they are federal or provincial).
Anyone have any experience with this?
Michigan Foreign Tax Credit
Moderator: Mark T Serbinski CA CPA
I try not to get too specific about state taxes, too many variants. I know NY state has a similar 'provincial tax only' deduction/credit. it is a nice bonus that residents of other states do not get.
However, you should be able to determine what is federal tax and what is provincial. may websites have a table which gives you the tax rates for the feds and each province. That should be close enough.
In fact, when you do your taxes (I'll assume you are working in Ontario, there is even a schedule ON428 that calculates EXACTLY what your provincial tax is.
You can assume that any CPP and EI you paid is considered federal.
I would also work on the premise that all the foreign tax leftover for carry forward on your 1116 is provincial (up to the amount on form ON428).
Michigan will let you know if they have a problem with this.
However, you should be able to determine what is federal tax and what is provincial. may websites have a table which gives you the tax rates for the feds and each province. That should be close enough.
In fact, when you do your taxes (I'll assume you are working in Ontario, there is even a schedule ON428 that calculates EXACTLY what your provincial tax is.
You can assume that any CPP and EI you paid is considered federal.
I would also work on the premise that all the foreign tax leftover for carry forward on your 1116 is provincial (up to the amount on form ON428).
Michigan will let you know if they have a problem with this.
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
Yes correct, working in Ontario. Thank you this was helpful. I will claim the leftover and see what happens; it's worth giving it a shot. Worst case they deny it and I pay the tax that I'm supposed to.
I assume based on your response that not all states in the US allow credits for taxes paid to Canadian provinces. Yet another inconsistency between the two systems; as I believe Canada generally allows you to claim all state, FICA and local taxes as a credit on your Canadian return (regardless of which state or city you paid them to). I think you add them all together, claim what you can federally and then any leftover can be claimed provincially. I suppose Canada’s system may be similar to Michigan’s system and perhaps some other states, but I’m guessing not all states. Does this sound about right? If so, is this because some states choose to follow the treaty and others don’t? I know California and some other states don’t follow the treaty, so I’m guessing these same sates don’t give credit for Canadian provincial taxes either?
I assume based on your response that not all states in the US allow credits for taxes paid to Canadian provinces. Yet another inconsistency between the two systems; as I believe Canada generally allows you to claim all state, FICA and local taxes as a credit on your Canadian return (regardless of which state or city you paid them to). I think you add them all together, claim what you can federally and then any leftover can be claimed provincially. I suppose Canada’s system may be similar to Michigan’s system and perhaps some other states, but I’m guessing not all states. Does this sound about right? If so, is this because some states choose to follow the treaty and others don’t? I know California and some other states don’t follow the treaty, so I’m guessing these same sates don’t give credit for Canadian provincial taxes either?
The difference is that years ago the provinces gave up their taxing regimes to the feds, while the states did not.
States can tax (or not) as they wish. It is not a treaty matter. No states follow "the treaty". Instead they either follow the IRS lead or not on matters).
In this case, it goes to each state's definition of 'out-of-state" taxes. Most only allow taxes from other US states. MI and NY include the provinces (no doubt because of the number of their citizens who work and/or own property in Canada). it's a political thing. Even MI and NY don't use the same method on determining the credit/deduction.
As I said, each state has quirky rules throughout their tax code. that is whey I don't deal with them here very much.
This one though has some cross-border implications.
States can tax (or not) as they wish. It is not a treaty matter. No states follow "the treaty". Instead they either follow the IRS lead or not on matters).
In this case, it goes to each state's definition of 'out-of-state" taxes. Most only allow taxes from other US states. MI and NY include the provinces (no doubt because of the number of their citizens who work and/or own property in Canada). it's a political thing. Even MI and NY don't use the same method on determining the credit/deduction.
As I said, each state has quirky rules throughout their tax code. that is whey I don't deal with them here very much.
This one though has some cross-border implications.
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
Sorry, just thought about one more thing. If I have carryforward foreign credits from my 1040 from a previous year, do you think I can use these on the current year Michigan return as well, or do I have to go back and file an adjustment to the state return to include them for previous years?
If one was not aware that they could be claiming the leftover credits on their state return, I could see how they might have a large pool of carryforward credits built up. Thanks again!
If one was not aware that they could be claiming the leftover credits on their state return, I could see how they might have a large pool of carryforward credits built up. Thanks again!
Again: state taxes. I'm not even going to look at your state forms. You will have to check with Michigan.
Typically you can't carryforward what you haven't already reported and tried to claim in a previous year. That applies to cap gains/losses and foreign taxes. You might not even be allowed to carryforward (in Canada you can't for example).
Typically you can't carryforward what you haven't already reported and tried to claim in a previous year. That applies to cap gains/losses and foreign taxes. You might not even be allowed to carryforward (in Canada you can't for example).
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