Company Pensions in both country + Lump sum to LIRA

[icbusiness]

I am a dual US CDN citizen, & my wife is Canadian - (I have been filing 8891 with IRS). I returned to Canada in 2003 and worked here until laid-off/early retired in Jan 2009

On Aug. 1 2010 I officially retired with 3 Company pensions from what is the same corporation. (2 Cdn and One USA Pension)

#1) Canada- a "Small" company pension for years employed in Canada 1976-1987 - that was not portable - took 60/40 J&S option selected.
- But, So far NO withholding due to an paperwork error

#2) Larger Pension from US division - taken as 60/40 J&S (pension was not portable) - My Period in USA was 1987/2003) Pension is paid from USA company to me in Canada by cheque
- But so far no withholding taken due an paperwork error.

#3) Another Canadian Company Pension Work period 2003-2009 that was PORTABLE - I took it as Lump Sum - transferred it to a LIRA for which I will add a Form 8891 for the 2010 tax year

Therefore - no withholding was taken on company Pensions A) or B)
- I will pay the past due holding ASAP for the Aug 1 Sept 1 Oct 1 payments

*Could you please advise what withholding forms should be filed to take care of taxes in USA and Canada - and taking into consideration the Tax Treaty:
** How should I setup the withholding and how much tax can I expect to be withheld?

Other info that might be needed & another question
- I received severance payments through July 2010 and earned a one time $40K in consulting fees in 2010 for which I have made a CRA installment tax payment
- But self employment tax due in USA - how do I pay it ?
- I will be filing a 2555 for the earned income.
- this put me in the 26% CDN federal bracket before the pension income is taken into consideration. (pension total about 2200/mth x 5 mths)

Are there any other issues?
Thank you very much

[nelsona]

1) you should have (and probably have now corrected) submitted a TD1 form to your pension manager to provide him with guidance as to how much tax sghoudl be withheld from your pension.

2) as aboove, providing a w-4P

3) I assume this was done as a direct transfer, so no withholding was made

I'm not sure it is necessary to send anything now to either IRS or CRA for past withholding the was "missed". This will get corrected at tax time.

If the consulting was done in canada, there shoudl be no self-employemnt tax due in US. You are paying into CPP, and live in canada, thus SE tax does not apply to you. 2555 should take care of any incoem tax on that.

Be aware that although tax will be being witheld, this is not the final tax determination in either country.

You will need to report ALL income in BOTH countries' tax returns. Pension income is not exempt (like wages) so you will need to apply tax credits in both directions in order to determine how much more you need to pay IRS (for example) on your Cdn pension income, and how much more you need to pay CRA on your US pension.

Unfortunately, when income is split between the 2 countries, one usually pays more than if the income were all from one or the other country, regardless of where one lives.

[icbusiness]

Nelsona

Thank you for the very fast response
The consulting was performed in Africa (ZM and ZA) so I can avoid the Self Employment tax ..great
The LIRA transaction was performed directly from the Pension fund to to LIRA at TD Waterhouse.

How does the Tax Treaty come into play - when doing the tax credit calculation on each return? (is that done on IRS form 1116 ?)

You forum provides excellent support to the ignorance and fearful - congratulations

& Thank you

[icbusiness]

[quote="icbusiness"]Nelsona

Thank you for the very fast response
The consulting was performed in Africa (ZM and ZA) so I can avoid the Self Employment tax ..great
The LIRA transaction was performed directly from the Pension fund to to LIRA at TD Waterhouse.

How does the Tax Treaty come into play - when doing the tax credit calculation on each return? (is that done on IRS form 1116 ?)

You forum provides excellent support to the ignorant and fearful - Congratulations!

& Thank you[/quote]

[icbusiness]

[quote="icbusiness"][quote="icbusiness"]Nelsona

Thank you for the very fast response
The consulting was performed in Africa (ZM and ZA) so I can avoid the Self Employment tax ..great... I sent the money with my 4868 extension.
The LIRA transaction was performed directly from the Pension fund to to LIRA at TD Waterhouse.

How does the Tax Treaty come into play - when doing the tax credit calculation on each return? (is that done on IRS form 1116 ?)

You forum provides excellent support to the ignorant and fearful - Congratulations!

& Thank you[/quote][/quote]

[nelsona]

I am not certain that work done outside US and canada is covered by the Social security agreement. My response was for work done in canada.

The tax treaty doesn't really come into play in your case, since you are a US citizen. Form 1116 doesn't rely on the tax treaty.
It simply gives credit for Cdn tax paid on Cdn source income.

[icbusiness]

Nelson - You indicated if the consulting was done in Canada, there should be no self-employment tax due in US. You are paying into CPP, and live in Canada, thus SE tax does not apply to you. 2555 should take care of any income tax on that.

Yes, I have paid CPP/EI.
How does 2555 take care of eliminating the SE tax...In Turbo tax I have been unable to get the tax to disappear on the software

On doing some research this evening I found the IRS comment: (see example)

Who Must Pay Self-Employment Tax?
If you are abroad and you are a self-employed U.S. citizen or resident you generally are subject to the self-employment tax. This is a social security and Medicare tax on net earnings from self-employment of $400 or more a year. Your net self-employment income is used to figure your net earnings from self-employment. Net self-employment income usually includes all business income less all business deductions allowed for income tax purposes. Net earnings from self-employment is a portion of net self-employment income. This amount is figured on Schedule SE (PDF). The actual self-employment tax is figured on net earnings from self-employment.

Effect of Foreign Earned Income Exclusion
You must take all of your self-employment income into account in figuring your net earnings from self-employment, even income that is exempt from income tax because of the foreign earned income exclusion.

[b]Example:
You are in business abroad as a consultant and qualify for the foreign earned income exclusion. Your foreign earned income is $95,000, your business deductions total $27,000, and your net profit is $68,000. You must pay self-employment tax on all of your net profit, including the amount you can exclude from income.[/b]

http://www.irs.gov/businesses/small/int ... 60,00.html

[icbusiness]

Exemption From Social Security and Medicare Taxes(p11)
Exemption From Social Security and Medicare Taxes

PUBLICATION 54 page SE2 agrees with your point BUT
if I complete Schedule C Business Income and Expenses in Turbo Tax I cannot eliminate Schedule SE (short ot long version) OR the amount of tax applicable (Charged) I have not found a way to override it.

So Being US (& Cdn) Citizen, Resident of Canada (for over 5 yrs since returning) paying CPP as applicable in Canada, how can I actually get my return to recognize the USA SE tax is not applicable under the Social Security Treaty to avoid double taxation
------------------------------------------------------------------------------
other then I found on your site
[url]http://www.serbinski.com/taxation-in-us ... dents.html[/url]
ref form CPT56 (CRA)

[url]http://www.socialsecurity.gov/internati ... rview.html[/url]

[icbusiness]

HORRAH I found the following BandAid solution to outfox Turbo Tax

I went thought hundred of posts in the TT forum and found:

Johmat’s TT bandaid solution to outfox TT to work properly

THE BANDAID SOLUTION:
OK, I think I found a way to outfox TT without causing too much extra work.

If you just let TT calculate the SE tax, it percolates through the whole system and affects other calculations.

Here's what to do: 1) Go to the Business section and change the Business code in your Business Profile to 813000 (Religious Organizations). These people can choose to be exempt from SE tax. When you continue, you'll get a question about SE tax. Choose the last one ("I'm Exempt From Self-Employment Tax - I've Filed Form 4361").

Now TT will skip SE tax altogether and you can complete the rest of your forms. However, you'll have to correct two forms when you print them out: 1040 line 56 will have a note "Exempt - 4361"; ***this should be changed to "Exempt - see attached statement" (***and attach your exemption letter from the foreign government). And you'll need to correct the Business Code in box B at the top of 1040 Schedule C.

This saved me a lot of time this year - I hope it helps others until TT gets this problem addressed in the software."

-----------
BUT it mentions: Attach an Exemption Letter/Statement?
I assume it would be something like:

"Exempt - see attached statement"

Statement:
EXEMPTION OF SELF EMPLOYMENT TAXES
I wish to use The United States Totalization Agreement with Canada to avoiding double taxation of income with respect to social security taxes. As a U.S. citizen and resident of Canada I am subject to the social security taxes of a Canada where I reside.

Signed XXXXXX Dated XXXXXX

I hope this helps others

[nelsona]

I don't know what you are cheering about. This covers work done in canada, as I said earlier.

You need to talk to the CPP compliance people to see if work done in the 3rd-country is covered by the US-Canada agreement.