Canada OAP and US Social Security

[nelsona]

Just one little point of correction. WE refer to getting an extra year as 1/40th. But in terms of the individual, it not 1/40, it is 1/(the years he has).

So, someone who has say 10 years at age 65 when he waits a year, gets aa 10% increase: 11/40th instead of 10/40ths. If 400 was the max, at 65 he would get $100, but at 66, he would get $110: a 10 percent increase, by choosing that method)

So whether or when the 0.6 per month is better, on also has to consider the number of years one already has.
Eventually the 0.6 will surpass the extra slices, but that will be dependent on each situation, and it may not be before 70.

[nelsona]

The cutoff is 14 year of eligibility at 65. If one has less than that, adding years will always be better than accepting the 65 year amount and adding the 0/6 per month.

Of couse, on would also need to consider if the need to reach the 20 year mark (wishing perhaps to move to a country without an agreement). then the 15 to 19 year group may wish to wait.

But certainly, for 20 and up, freezing the 65 amount and using the 0/6 deferal reward will win out --- which of course brings us back to the decision on whether to wait at all.

[MaggieA]

Right, I completely agree. Excellent clarification that people with under 14 years of eligibility are better off adding years of eligibility rather than months at 0.6%.

I also agree about deferring. I see articles in the media all the time about how deferring CPP all the way to age 70 is the best choice. They hedge more with regard to OAS. In my opinion, people need to consider their own circumstances of course, and that's probably the most important thing. But I do rather question the drumbeat in favour of deferring. For myself, the math didn't make sense. With regard to OAS specifically, I think I'm likely to be in the privileged situation of being subject to clawback err recovery tax, in my 70s. I'm not complaining about this, but it does make me figure that if I can get a bit of OAS in the meantime, I might as well collect it.

[nelsona]

The only one that *might* make sense is SS, but ONLY if you are still working (or planning to work, even in Canada) since you will lose SS for those working years up to your full retirement age, and lose the deferral bonus.

You might also wait if you are planning to return to US once Medicare kicks in at 65, to avoid the high Cdn tax on SS.

[Fug1]

This was a great thread. I'm going to have somewhere around 35 years of OAS eligibility. It sounds like it doesn't make sense for me to defer OAS to add extra years of eligibility, unless maybe delaying by a month or two would add another year. So my question is, what determines a "year" of eligibility? Is it sufficient to have resided it Canada at any time during a calendar year? Or is it based on your residence when you file your taxes?

[nelsona]

They count the months.

[Fug1]

Okay, so it's months of residence in Canada divided by 12 to get years of eligibility? That makes sense, they seem to ask the specific time periods living in and out of Canada in the OAS application form.

Do you know if they count partial months, and if they round down or up to get the number of years?

[nelsona]

Talk to service canada. You will need to deal with them in any event.

[MaggieA]

I only had one period outside Canada, not two, so I can't say I know from personal experience what happens when they add together two or more periods. But with the one period outside Canada, I'm sure they don't round or count partial months. A year of eligibility is twelve full months, period. You can see more details and a link to the text of the Social Security Act in my earlier posts on this thread.

[nelsona]

I think there is a post in this thread that stated that they do *count* the months, but as Maggie says, they will only give you your OAS in full years.

Ex: you have 25 months and 8 months when you turn 65. If you take OAS immediately, you will get 25/40ths of the maximum. If you wait 4 months however, you will get 26/40ths.

[Canadian Newbie]

Thanks to the great replies, I know how to proceed with my Wife's application for OAP. At this point, I wish I had delayed my app for OAS. Oh well.
I am preparing my returns for 2023 and have one last question. I am a dual citizen living in Canada. If I am reading the treaty correctly, I report the OAS as follows:

OAS is reported on both my T1 and my 1040. I can take a tax credit on my 1040 for the Canadian tax paid. The credit is not limited to 15% as is the case with pension income that is from US sources that I report on my Canadian return. So far that has not happened but it may this year since my US tax will go up by quite a bit. I will have to resource back to the US return is that happens.

Also, I am collection a very small amount of GIS which is not taxable for Canadian purposes. I assume that is also the case for my US return. I will not report it on the US return.

Thanks in advance.

[nelsona]

Incorrect reporting on 1040. You include the income on social security line as gross, zero as net, and then attach an 8833 explaining that you are a Cdn resident and exempt from tax on CPP and OAS (and SS if applicable). Your other choice is to not report these on the SS line at all, but still include the 8833.

Do not include it in your AGI, the credit won't work out. It is not re-sourced income, since it is not US-sourced.

[Canadian Newbie]

Thanks Nelsona.

I was not aware that I was exempt from tax on the OAP similar to my US Social Security. Will report as you stated.
Regarding the GIS that I collect, I will not report it on my Canadian and US returns since it is not taxable for Canadian and therefore not taxable for US under the treaty.

Thanks again for all your help as always.

[Canadian Newbie]

Thanks Nelsona.

I was not aware that I was exempt from tax on the OAP similar to my US Social Security. Will report as you stated.
Regarding the GIS that I collect, I will not report it on my Canadian and US returns since it is not taxable for Canadian and therefore not taxable for US under the treaty.

Thanks again for all your help as always.

[Canadian Newbie]

Thanks Nelsona.

I was not aware that I was exempt from tax on the OAP similar to my US Social Security. Will report as you stated.
Regarding the GIS that I collect, I will not report it on my Canadian and US returns since it is not taxable for Canadian and therefore not taxable for US under the treaty.

Thanks again for all your help as always.