Maternity Benefits from Canada to report on 1040

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Andromeda
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Joined: Wed Mar 27, 2013 1:05 pm

Maternity Benefits from Canada to report on 1040

Post by Andromeda »

I left Canada at the end of Aug 2011 with my husband and 2 months old baby on a H1-B dependent visa (H4). We filed resident taxes with CRA and 1040-NR with IRS in 2011. I continued to receive maternity benefits from Service Canada for the first half of 2012. I did not work in the US in 2012-not eligible to work due to my dependent H1-B visa status. How do I report my maternity benefits (what line on 1040) and where to claim the Canadian taxes withdrew on the 1040?

Do I qualify for 2555 Foreign Earned Income Exclusion or I have to use Form 1116 Line 47 on 1040 to claim Foreign Tax Credit?

What is best: filing jointly with my husband (who worked in the US for whole 2012) or my husband filing as head of household and me filing separately?

Thank you.
nelsona
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Post by nelsona »

I assume you filed a departure return for canada? You shouldhave, and you should not have to file in Canada for 2012.

You report the mat benfits as other income. You use 1116 for any Cdn tax that you paid (should have been 15%), to get credit.

you can't use 2555 becuase (a) it isn't easrned income and (b) you reside in US. 2555 is for earned income (wages) earned outside US, when living outside US
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Andromeda
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Post by Andromeda »

Thank you, Nelsona. I did file a departure return with CRA.

On another website someone was asking a similar question regarding maternity benefits rec'd in Canada, but she was a US Citizen working in Canada. She was advised to treat it as temporary disablity benefits and report it as wages on Line 7. If the premiums were paid by the employer they should be reported, but they were paid partly by the employer and partly by the employee on a pre-tax basis, then they still should be included as wages. The result is the same actually: increase in Total Income.

If i enter the mat benefits as Other income, actually there is no category in Turbo Tax to cover it, but I'll have to figure out something so the amount will show on Line 21. This is where you suggested to enter the mat benefits, on Line 21, right?

I received the benefits biweekly for half a year. Can I use the yearly average exchange rate for USD/CAD ?

Service Canada withdrew 25% non-resident income tax from my mat benefits.

On another note, I know you recommended to use Form 3520-A to report TFSA interest. We have $450 interest from TFSA for 2012, all accounts are SAVINGS- can I report the amount as interest, without having to file Form 3520?

Thank you very much.
nelsona
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Post by nelsona »

What website was that, I'd like to know what other misinfoamtion they are stating. Govt mat benefits are NOT wages, and are reportable under ALL circumstances.

I would put this on line 19, since it is essentially unemployment insuarnce. I would go to the bank of canada website and run an average exchenge for the period you collected. its simple.

I guess 25% NR withholding is correct. Did you look into reducing this by a section 217 election for 2012, you should be able to get at least 10-12K of income without tax, maybe more.
see:
http://www.cra-arc.gc.ca/E/pub/tg/t4145/t4145-12e.pdf
Then you won't have to worry about 1116 at all. this would be better than paying CDn tax and then claiming credit. Please do this. You have until June 30, 2013.


Unless you have documentation about your TFSA account NOT being a trust, you have to assume it is. The TFSA is closed now, right? Close it now.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Andromeda
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Post by Andromeda »

The website is Just Answer/tax, the link is below:
http://www.justanswer.com/tax/3lovp-us- ... ed-ei.html

This tax adviser says "mat benefits are not classified as unemployment benefits". You'll see his explanation if you follow the link. I just realized the post is quite old (1019 days); therefore, a lot may have changed in between.

As you suggested, I entered the mat benefits amount under Unemployment in TurboTax (1099-G Gov't Unemployment), and it asked me for the income tax withheld. Since it is not US income tax, I did not enter the tax there, but I claimed it in Form 1116; I paid (at the source) $2000 in income taxes and I want to get a credit for it, or the IRS will tax me on the whole EI benefits and I don't think it's right. Am I right to claim the foreign tax credit?

After I file with CRA under Section 217, I will see if/how much refund I will get for the tax paid (they'll reduce the 25% NR tax to probably 15%) under the Tax Treaty- or is it a different percentage? Then I'll amend the 1040 with the tax refund in the 1040X. Is my logic good or am I missing something?

As for the TFSA, I have not closed it yet. I have not contributed to it since we left Canada. I figured I would accumulate interest at 1.4% in CAD and then pay tax only to the IRS, which in the end I assumed would be better than converting the TFSA into a simple Savings account and have to pay tax to both CRA and IRS, or only one of them due to the Income Tax Treaty (avoiding double taxation). But it seems extremely complicated to file the Form 3520, from what I read on this forum (very informative-thank you all!!!!). Moreover the Mar 15 due date to mail it to Ogden has passed. So for now I think I'll inquire with both Scotia Bank and ING Direct to see if I can get anything from them in writing specifying that the TFSA Savings (Cash) accts are NOT trusts.

Thank you very much.
nelsona
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Post by nelsona »

One at a time:

LEV is wrong on this one. His explanation may apply to some private income-replacement insurance, but certainly not Cdn mat leave which is 100% EI under another name.

You need to report the whole amount, pre-tax as unemployemnt. No US tax was witheld. Correct. The tax credit is a separate issue.

217 calculates a tax rate, not a flat rate. You need to do 217 before you can do 1116, since you do not know what the tax will be (in fact it will be zero and you will be refunded -- so don't bother with 1116). Do NOT file 1040 incorrectly. You know you will be getting all the money back from Canada, so do not claim that you have tax from Canada.


As you will see, yes, you will pay US tax on the mat benefits, that what happens for living in US: youy pay US tax on everything you get. Reducing your Cdn tax, increases your US tax, but it still works out better. you'll see. You were not going to get credit for the full $2000 in tax anyways.

Close the TFSA. Every penny you take out can be put back in. You are not earning anything worth the hassle of 3520. and its all taxable anyways. Close it and use the money towards your home in US.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Andromeda
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Post by Andromeda »

It's dissapinting that I'll have to take out the foreign tax credit- a nice $1278. But I'll do that,if that's the right way, and start with my Canadian Return Section 217. I thought I would do them later, sinnce I had until June 30.

I did file a Form NR5 last year in February and got a reduction to 4% of my tax, but by the time I got it to be applied by Service Canada (2 months later, after numerous calls to CRA And Service Canada) I only saved $760 in tax. So you are saying, I should be able to get back my whole $2000 tax that they withdrew last year? My mat benfits were a little over 10000.

Thank you.

As for the TFSA, can't use it for a downpayment, we altready bought a house here so not worth transferring the funds to the US. Pretty low interest rates....
nelsona
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Post by nelsona »

Why would you be disapointed to get a $2000 refund in exchage for a $1200 payment. That is one hell of a return for a couple of posts on the internet.

Prep a 217 (ufile works fine) you'll see. as long as you (yourself) had little or no income in US, you will get the persoanl amount, and if you need more, just use hubby's medical payments from his job. Thast should be plenty.

.. and a tip for this anfd future years. start taling out any RRSP you have at $10-15K chunks every year and end up paying no Cdn taxes on that either

I should get a commission ;-)

For TFSA, I meant you can use it to lower your principal. Put it in a roth, do whatever. Point is get rid of TFSA. Is there a listening problem?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Andromeda
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Post by Andromeda »

Thank you so much, nelsona. You are great!

I had no income in the US last year and I go rid of the RRSP before we left Canada, for which I paid a lot of taxes :-(. Did not know your trick... It was good though, to use it for the downpayment of my house.

I got you on the TFSA. But still need some reserves, you know ... 6 month-worth of income. Maybe invest it some other way.
nelsona
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Post by nelsona »

Not maybe.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
tbabu
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Post by tbabu »

[quote="nelsona"]Not maybe.[/quote]
What is the big deal with keeping a TFSA active while a non-resident of Canada and living in the US? I will not be moving any money in and out of the account. Right now it is all in cash but I planned on investing it in some ETF's
nelsona
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Post by nelsona »

Thanks for joining tbabu.

The problem is 2-fold:
1. TFSA's are not sheltered for US tax purposes, thus every penny of income that is earned is taxable in US. So much for tax-free.
2. what you hold will be subject to FATCA, FBAR and 3520 reporting.
Too much of a headache.

Note that every penny you take out of a TFSA can be put back in later, so closing it now, investing it in US, very likely tax-free (like those same ETFs or a home), and then putting back the same ammount when you return is the sensible way to go.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
tbabu
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Post by tbabu »

My tax consultations are being paid for by my company so not really headache for me to file the forms. But will there be tax implications on the accounts if I just leave the money there?

BTW, this is an awesome forum.
nelsona
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Post by nelsona »

Yes. As I already responded, you will be taxed in US on any income the funds generate. And if your consultants make an error, YOU will be the one that pays the fine, not them.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
kimf
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Joined: Sun Apr 27, 2014 6:01 pm
Location: Canada

Post by kimf »

So just checking, you're suggesting that we claim EI benefits on 1099-G? I'm a little confused after reading through this thread.
Background: I'm a US citizen living in Canada that received EI benefits last year.
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