Article XV 2(a)
Moderator: Mark T Serbinski CA CPA
Article XV 2(a)
Can a U.S. citizen, resident in Canada use XV 2(a) to exclude employment income on my 1040? I had $5,000 of U.S. source employment income in 2015. I live in Canada.
No. XV(2) is not available to US citizens by XXIX(2). Only the sections outlined in XXIX(3) are available. XV is not there as you see.
So, a US taxpayer cannot exclude US-source wages.
However, since this wage would be exempt from taxation if you were not a US citizen (it is less than US$10K), another treaty article -- XXIV(4) -- would be used for relief.
Instead, you will report the income on both Cdn and US return. Canada will NOT give you credit for any US tax you owe on this income. Thus the US will allow you to "re-source" a sufficient amount of this income on Form 1116 to reduce the US TAX on those wages to zero.
Most software can handle this, and there is a worksheet in the IRS Foreign tax credit guide.
So, a US taxpayer cannot exclude US-source wages.
However, since this wage would be exempt from taxation if you were not a US citizen (it is less than US$10K), another treaty article -- XXIV(4) -- would be used for relief.
Instead, you will report the income on both Cdn and US return. Canada will NOT give you credit for any US tax you owe on this income. Thus the US will allow you to "re-source" a sufficient amount of this income on Form 1116 to reduce the US TAX on those wages to zero.
Most software can handle this, and there is a worksheet in the IRS Foreign tax credit guide.
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
No, but you don't need this provision for state tax.
If you do end up paying NY State tax on this income, you certainly can claim it on your Cdn return, along with any FICA you paid. Only the IRS tax is not creditable on your Cdn return, thus the re-sourcing provision.
and even if it were as you described it, the credit would be for NY tax paid not provincial tax paid.
The IRS provision credits back US tax paid.
If you do end up paying NY State tax on this income, you certainly can claim it on your Cdn return, along with any FICA you paid. Only the IRS tax is not creditable on your Cdn return, thus the re-sourcing provision.
and even if it were as you described it, the credit would be for NY tax paid not provincial tax paid.
The IRS provision credits back US tax paid.
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
So T1 would show the employment income as foreign source so that a foreign tax credit could be picked up on the state and FICA taxes.
The 1040 shows the same income resourced to Canada, picking up Canadian taxes as FTC.
NY return - typical non-res return showing the employment income.
Just seems counter intuitive to show the income as foreign source on T1 after re-sourcing on 1040. Makes sense tho to avoid double taxation.
The 1040 shows the same income resourced to Canada, picking up Canadian taxes as FTC.
NY return - typical non-res return showing the employment income.
Just seems counter intuitive to show the income as foreign source on T1 after re-sourcing on 1040. Makes sense tho to avoid double taxation.
"The 1040 shows the same income resourced to Canada, picking up Canadian taxes as FTC."
Again, you seem not to be understanding how the "resourcing" works. You re-source the US-source income based on the US TAX that was allotted to that income, not the Cdn tax.
If this $5000 was taxed $1000 in Canada and $2000 in US, your 1116 is working to reduce the $2000 US tax to zero, not the Cdn tax. This is the big difference. it becomes important when the Cdn tax is lower than the US tax to start with.
From Canada's point of view the income is ALWAYS foreign, and will be shown on T1 as this at all times on the fed FTC and prov FTC (if any left). It is only that US tax that results from your being a US citizen that can't be credited (you remove this from the foreign tax amount on T1 FTC calculations.) You show NY tax (calculated on your NY return) and FICA, not the IRS tax.
Again, you seem not to be understanding how the "resourcing" works. You re-source the US-source income based on the US TAX that was allotted to that income, not the Cdn tax.
If this $5000 was taxed $1000 in Canada and $2000 in US, your 1116 is working to reduce the $2000 US tax to zero, not the Cdn tax. This is the big difference. it becomes important when the Cdn tax is lower than the US tax to start with.
From Canada's point of view the income is ALWAYS foreign, and will be shown on T1 as this at all times on the fed FTC and prov FTC (if any left). It is only that US tax that results from your being a US citizen that can't be credited (you remove this from the foreign tax amount on T1 FTC calculations.) You show NY tax (calculated on your NY return) and FICA, not the IRS tax.
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
I think I got it now. It's just like when I have US source dividends and the 1040 taxes the dividends at more than 15%. I resource the dividends and claim an FTC to limit the US tax to 15%. Same concept.
The rest of my 1040 is all Canadian source employment income, interest and rental. I'll source it all foreign in the appropriate baskets and claim an FTC.
The rest of my 1040 is all Canadian source employment income, interest and rental. I'll source it all foreign in the appropriate baskets and claim an FTC.
it is EXACTLY like that. (except that you can't claim the US tax overage as a deduction on your T1 for US wages, like you can for dividends.
Any reason you don't use 2555 on your earned income? This would likely result in no tax in US at all, and certainly less than 15% on dividends.
Any reason you don't use 2555 on your earned income? This would likely result in no tax in US at all, and certainly less than 15% on dividends.
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. Valid point. I'm over the exemption limit so I always found it easier to just claim the FTC rather than exempt a portion and then figure out the remaining creditable taxes for FTC.
Mainly force of habit as well. US source income has rarely been an occurrence for me so it's always been fairly straight forward (in my mind anyway).
Mainly force of habit as well. US source income has rarely been an occurrence for me so it's always been fairly straight forward (in my mind anyway).
Yes, once you are over the limit, you're not helped much by 2555. And this way you get a little deduction on T1 that you wouldn't get otherwise.
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