I am a Canadian Citizen working in US for the past 5 years. Since then, I've been filing both US and Canadian tax return. In 2006, my US employer required me to work on a project in Toronto for 6 months. During this period, my company withheld my Canadian income tax. Therefore, I am getting a W-2 and a T-4 from my US company for 2006. The problem is the W-2 includes the income in T-4. i.e.
Altogether, I made ~$100,000 in 2006 of which $50,000 was made in Canada and my company withheld Canadian tax of ~14,000 and they withheld US tax of ~15,000.
W-2 shows $100,000 (wage) $15,000 Tax withheld
T-4 shows $50,000 (wage) $14,000 Tax withheld
When I file the US tax return, I use the Canadian $14,000 tax as foreign tax credit using 1116, I am getting approx. $11,900 credit. However, the tax software triggered the AMT calculation (6251) and ended up I owe $11,200 AMT. This is kind of stupid, because the foreign tax credit is almost totally offset by the AMT and I need to pay ~14,000 more tax (i.e. I need to pay $43,000 tax for $100,000 income for 2006 (43% Tax!!!)). Did I do something wrong? I am thinking the W-2 should have $50,000 as wage instead of $100,000 because the other $50,000 was made in Canada (not US). Should I go back to my employer to ask for an updated W-2?
Thanks in advance. I hope it's not too confusing.
Foreign tax credit and AMT
Moderator: Mark T Serbinski CA CPA
Maybe I figured this out
Seems like I need to file two 1116 (foreign tax credit). One for 1040 and one for 6251. This seems silly because the two 1116 have pretty much identical data. Am I correct?
Thanks!
Thanks!
It doesn't really matter what the W-2 wage says. You would have had to report all the wages anyways. Just don't report the T1 wages on top of it.
The T1 wages are foreign source, of cource. You may have relief by the re-sourcing rules on your US-source wages.
The T1 wages are foreign source, of cource. You may have relief by the re-sourcing rules on your US-source wages.
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
m1 is correct in surmising that the W-2 should not include the Canadian wages which are reported on his T4 slip.
m1 did not earn $150,000 world income. If tax was required to be withheld under Canadian rules, then that income is Canadian source and is reported on a T4. That same income is then not US source, and should not be reported on the W-2. If it were US source, then the IRS would correctly expect proper withholdings, which were not done.
The payroll department screwed up, and the W-2 should be adjusted to only reflect the US portion of his wages.
m1 did not earn $150,000 world income. If tax was required to be withheld under Canadian rules, then that income is Canadian source and is reported on a T4. That same income is then not US source, and should not be reported on the W-2. If it were US source, then the IRS would correctly expect proper withholdings, which were not done.
The payroll department screwed up, and the W-2 should be adjusted to only reflect the US portion of his wages.
I'm not so sure of this. This may be analogous to a Cdn working in Toronto and Montreal, for the same firm.
Their T4 would indicate all wages, and there RL-1 would indicate Quebec-source wages only. Withholding would have been adjusted. He would not geta T4 with a reduced wage ammount.
The worker would obviosly not have to add the RL-1 wages to his t4.
I view the W-2 as the statement of wages. The T4 is a statement of SOURCE of wages, and, more importantly, the WITHHOLDING.
In any event, our poster isn't going to report $150K in wages; he will report his W-2 wages. Getting the W-2 corrected might be useful, but will not change his tax situation.
Their T4 would indicate all wages, and there RL-1 would indicate Quebec-source wages only. Withholding would have been adjusted. He would not geta T4 with a reduced wage ammount.
The worker would obviosly not have to add the RL-1 wages to his t4.
I view the W-2 as the statement of wages. The T4 is a statement of SOURCE of wages, and, more importantly, the WITHHOLDING.
In any event, our poster isn't going to report $150K in wages; he will report his W-2 wages. Getting the W-2 corrected might be useful, but will not change his tax situation.
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
Carson, how would the US entity report wages to the employee other than on a W-2?
The payor is still the US employer: he needs to report the wages to his employee on a W-2.
The payor is still the US employer: he needs to report the wages to his employee on a W-2.
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
The W-2 is the correct form to use for the US sourced earnings. Assuming it was correct to issue the T4 for his 6 month's wages in Canada, i.e. he was there more than 183 days or there is a branch office in Canada, then the W-2 should only include the US portion.
They wouldn't have to issue a T4 and withhold tax, etc. if there was a Treaty position exempting the income.
In the end, my point is that the two slips should total to $100,000 and not double count the income because the US will want to tax him on the gross income from each slip.
He might be able to explain his way out of this predicament with the IRS, but it's more sure to get the W-2 corrected, or for that matter, the T4 corrected if it was issued in error.
I've seen this sort of double counting before, and it always ends in adjusting one or the other slip, depending on the facts.
They wouldn't have to issue a T4 and withhold tax, etc. if there was a Treaty position exempting the income.
In the end, my point is that the two slips should total to $100,000 and not double count the income because the US will want to tax him on the gross income from each slip.
He might be able to explain his way out of this predicament with the IRS, but it's more sure to get the W-2 corrected, or for that matter, the T4 corrected if it was issued in error.
I've seen this sort of double counting before, and it always ends in adjusting one or the other slip, depending on the facts.
probably. My point is that the W-2 may be misleading, but it is not incorrect.
And if any tax was withheld in canada 9rightly or wrongly), the T4 is the only method to report it.
As I said, being a former QCer, I'm quite familiar with variations betwen T4 and RL-1, even for the same employee. There is no double reporting, just different repoting. same thing here.
And if any tax was withheld in canada 9rightly or wrongly), the T4 is the only method to report it.
As I said, being a former QCer, I'm quite familiar with variations betwen T4 and RL-1, even for the same employee. There is no double reporting, just different repoting. same thing here.
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