Foreign Tax Credit on 1040

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suedor
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Post by suedor »

I thought pub 514 excludes them (CPP and EI) because they are social security taxes and pub 514 says you can't use as a credit social security taxes from a country with which the U.S. has a social security agreement.

<i>No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. .
</i>

Sorry if I seem thick-headed about this, I'm really not trying to be difficult and I won't beat this EI "horse" anymore.

nelsona
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Post by nelsona »

514 clearly says that EI is a foreign tax eligible for credit.

EI is not a social security tax. It isn't in US and it isn't in Canada.

The proof of that is that the totalization agreement never utters the phrase UI or EI.

EI is a toatlly claimable foreign tax, from any country.



Earlier (much earlier) rhollan said:

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">if FICA is creditable as a foreign tax to Canadian tax residents it would stand to reason that CPP should be creditable as a foreign tax for U.S. tax residents. Of course, that would require making a separate Treaty claim from the non-discrimination claim I made.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

HUh?

A non-discrimination clause is <u>not a reciprocity clause</u>.

Non-discrimination means that IRS will not treat Cdn citizens worse than US citizens, in the same situation.

And that CRA will treat US citizens no worse that its own residents.

it does NOT force IRS to act the same way as CRA, nor does it force CRA to act the same way as IRS.

Using your argument, CRA should allow a Cdn should be allowed to deduct his mortgage interest on his T1, and IRS should an American should get $1000 of his pension tax-free on his 1040. Clearly this is not demended by XXV.

No, if you want to make CPP creditable, you have to use the treay, but not the non-discrim clause, as it is not pertinent to this. Suedor's tack has more merit.


<i>nelsona non grata</i>
suedor
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Post by suedor »

Nelson,
O.K., I see now about EI. I was thinking about it as a social security tax but I guess, as you state, that it is not one.

So, would one need to file 8833 to claim CPP as a foreign tax credit under the treaty?. Any idea what part of the code is referenced as being overridden by the treaty (since form 8833 asks for this)? Sorry for asking but I thought you might know right off.

Also, out of interest, if one is a Canadian resident who is claiming FICA as a foreign tax credit, do they have to file some sort of form invoking the tax treaty like you do in the U.S.?

Thanks
nelsona
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Post by nelsona »

Form 8833 is the way to go for IRS. I would simply indicate what treaty article I'm using and leave it at that.

As to Canada, CRA demands that you submit both your W-2 (or 1099) and your 1040, so they will have all the info they need.

They do not have a treaty election form.



<i>nelsona non grata</i>
nelsona
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Post by nelsona »

agreed, you were not directly claiming that non-discrim apllied here.

However, suggesting reciprocity in the same sentence as non-discrimination might lead one to conclude (as I did) that you meant 'making a separate claim of non-discrimination from the one you made (ie. 2 separate non-discrim claims).


As to reading better, sure.[:I]

Maybe reading less, too.[xx(]


<i>nelsona non grata</i>
nelsona
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Post by nelsona »

But on 'reading better, I don't see how you can say that you read the technical explanation and "still can't find the relevent section would suggest that CPP is a foreign income tax".

Article II <u>Taxes Covered</u> specifically mentions Cdn social security tax. suedor already pointed this out. And the same paragraph says that since these are in essence 'income taxes' (since they are imposed strictly based on income) then they are creditable.

Other than the worg 'generally', which we've already discussed, the relevance seems pretty clear.

You do have a copy of the technical explanation (canatech.pdf), eh?



<i>nelsona non grata</i>
nelsona
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Post by nelsona »

tax on income is income tax, however narrowly one defines the income to which it applies.

After all, capital gains tax is levied only on capital income, but it is still income tax eligible foir credit.


<i>nelsona non grata</i>
nelsona
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Post by nelsona »

One has to consider as well that the vast majority of US workers DO NOT pay UI premiums. That is a Cdn thing, that is gradually being more and more adopted by the individual states.

Up 'til now, UI premiums have been charged to the sector that is the ulimate CAUSE of unemployment: the former employer.

Another point: State and provincial taxes are not really covered by the treaty. One is allowed to claim Provincial Tax only because IRS recognizes that income taxes charged by a well-defined political entity (such as a province, or city) is a creditable foreign tax. Likewise CRA's acceptance of state and city income taxes.

If they decide tomorrow that these are not, nothing in the treaty will block that.

I would suspect that UI is viewed as a state tax by IRS, since the states run it, thus CRA requested that Canada'a EI/UI system (being federal) needed some specific treaty wording.

<i>nelsona non grata</i>
nelsona
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Post by nelsona »

My point about EI being eligible by the treaty (as is CPP, by the wording of Article II) is that unlike Pub. 514 and its parent regulations, US can't unilaterally change this and make it ineligible.

That is what makes it a treaty issue.


Canada, for example, does NOT (by treaty) accept UI premiums as a foreign tax. They could unilaterally decide to accept such, but can't be forced to.

US can be forced to accept CPP and EI.




<i>nelsona non grata</i>
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