Sourcing of wages under 10K

[Canadian Newbie]

I searched this topic but did not find anything exactly on point so sorry if I goofed.

I am a US citizen residing in Canada since 2014. I spend over 183 days in Canada and have my permanent residence here.

In 2017 I earned around $5000 working part time across the border for a US employer located in New York.

It appears that under the treaty, the wage is sourced to Canada. I report the wage on both my US and Canadian returns. I take a foreign tax credit on my US return on a Form 1116 marked as "resourced Income". It looks like I can take a credit for the small amount of SS tax on my Canada return. The credit on my Canadian return would be limited to the SS tax of course.

Please let me know if I am goofing this up. I think since I am a US citizen it does not change the resourcing to Canada.

Once I earn over $10K then I would take the FTC on the Canadian return since the wage would now be sourced to US.

Thanks in advance.

[nelsona]

It is only because you are US citizen that you need to resource the income on form 1116. If you were not US citizen, you would merely exclude the income altogether on 1040NR using the treaty article XV(2).
US citizens are prohibited from using that article, and CRA does not give credit for INCOME tax on that income, so your only recourse is to resource the US income into foreign income, and get the credit, reducing your US tax to zero.

You can still claim the SS and Medicare tax, since that is not 'forgiven' by either the treaty nor the totalization agreement. CRA knows this.

[Canadian Newbie]

Thanks Nelsona.
It does not appear I need to file form 8833 for the wage under $10k since resourced income is waived under the reproting requirement. Please correct me if I am wrong.

Thanks again!

[nelsona]

Well, you almost never "need" an 8833 (as there are so many exemptions and filing thresholds and waivers) , but it is always good to advise IRS what you are doing, since you are reporting all your other income, you want them to know why you are re-sourcing this particular amount, and 8833 is the way to do this.


Btw, you may have NY state tax to pay. NY doesn't have to exempt these wages (states are not required to follow treaty), so any tax you owe to NY would also be included on your Cdn return for credit.

[Canadian Newbie]

Thanks for the info on New York. I was actually in the process of figuring that out and read NY does not allow a foreign tax credit for non residents. I was not aware that states do not have to follow the treaty so thanks for that.
I will take the NY tax as a credit.....it will be small but every bit helps!

[nelsona]

Well, US doesn't give foreign tax credit for non-residents, either. You are considered a resident of US for federal tax purposes by citizenship. Not for state purposes.

So, it is not surprising that NY (and all other states) don't give a foreign tax credit, because it does not expect non-residents to report foreign income. You won't be reporting any foreign income on your NY return, so this isn't a concern for you.

Most states don't even give a foreign tax credit for their residents, who must report foreign income. NY however is one of those few states that does give credit for PROVINCIAL (but not federal) tax on their returns if a resident reports certain CDn income.

[Canadian Newbie]

Interesting. I am getting a real education here today.
Thanks!