Dual-Status tax year, income in Canada but from US source.

ktran03 · Post by **ktran03** » Sat Apr 07, 2018 3:40 pm

Hi.

I moved to US in Feb2017.
Prior to that I was an independent contractor, working from Canada. But the company that was paying me as a contractor was located in the US (US Source).

So for tax on the income before I moved to the US (about 5 weeks total, Jan01-Feb05 2017), do I pay this to the IRS or CRA?

nelsona · Post by **nelsona** » Sat Apr 07, 2018 7:08 pm

You pay this to CRA, because you were resident. However, if you are married and wish to file a full year 1040, you will also report in US.

If you file a 1040NR for the first 2 months, then you would exclude the income.

ktran03 · Post by **ktran03** » Sat Apr 07, 2018 7:54 pm

Thank You! That was what I was thinking.

"If you file a 1040NR for the first 2 months, then you would exclude the income."

By Exclude you mean don't report it to IRS at all?

I thought I am suppose to report my Jan-Feb income on 1040NR, and then file Form 1116 Foreign Tax Credit.

nelsona · Post by **nelsona** » Sat Apr 07, 2018 9:21 pm

No, form 1116 is for credit for foreign tax on FOREIGN income. You say this is US-sourced.

Non-residents of US don't pay US tax on all their US-sourced income, and this would be one occasion (US bank interest would be another, and less than 3K wages would be another). So, if you file dual-status, you would report that income on 1040NR, and then exclude it (by explanation on page 4-5). Then you would cpmlete 1040 as dual status.

If insted you chose to simply fiel a 1040 full year, you would include the income (since you are foregoing your right to be treated as non-resisnt for Jan/Feb), and now would be able to re-source the income and reduce the tax to zero using the re-sourced 1116. This is how US citizens living in canada (which would be in essence how you were treating yourself for Jan/Fev) treat that type of situation.