Article XXV for Canadian Residents

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Fan8899
Posts: 30
Joined: Fri Dec 28, 2018 8:16 pm

Re: Article XXV for Canadian Residents

Post by Fan8899 » Sat Feb 23, 2019 11:04 pm

Not accurate, above formula is for year 2014 form 1040, year 2018 form 1040 is different, line no. is different, but the concept is same.

adeboloj
Posts: 38
Joined: Fri Mar 24, 2017 10:50 am

Re: Article XXV for Canadian Residents

Post by adeboloj » Sun Mar 17, 2019 1:05 am

Please could you send me the correct formula for 1040NR for 2018?
Thank you

nikitapunch
Posts: 24
Joined: Wed Sep 02, 2015 10:21 pm
Location: Canada

Re: Article XXV for Canadian Residents

Post by nikitapunch » Sun Mar 17, 2019 11:42 am

I am looking at using pro forma myself and already drafted my forms to see what they would look like.

I actually posted separately but did not realize this post actually had a specific calculation I needed. I had searched for ‘pro forma’. I thought this was as simple as transferring one number from the 1040 to the 1040NR. I was wrong but this answered one of my questions.

I am looking at the line numbers at the time the calculation was provided from nelsona back in 2015 (for 2014). I would think the names of lines then would still match the name of lines now.

So if I have this correct I have the line numbers and names for 2018NR and 2018 1040.

1040NR [line 42] Tax = 1040NR [line 41] Taxable income * 1040 [line 11] Tax / 1040 [line 10] Taxable income

So this appears correct from what I saw you post prior.

So this calculated number is what goes in line 1040NR line 42.

And it was nice to see that nelsona had provided direction to go up to 1040 NR line 41 (Taxable income) and then 1040 up line 11 now (versus 44) for Tax. It would be easy for someone just to continue on on the 1040.

nikitapunch
Posts: 24
Joined: Wed Sep 02, 2015 10:21 pm
Location: Canada

Re: Article XXV for Canadian Residents

Post by nikitapunch » Sun Mar 17, 2019 10:34 pm

Hi adeboloj,

I wanted to ask you when you do a pro forma 1040 married filing jointly for you and your spouse are you entering information in only one 1040? Or are you filling out two 1040 forms?

I thought I was clear on this before but now questioning myself.

If you can expand on what you do that would be helpful.

Thanks.

nikitapunch
Posts: 24
Joined: Wed Sep 02, 2015 10:21 pm
Location: Canada

Re: Article XXV for Canadian Residents

Post by nikitapunch » Sun Mar 17, 2019 11:16 pm

Sorry adeboloj.

I need to backtrack. A joint 1040 is filed by both spouses including all world income for both reported. So I take this to mean one pro forma 1040 with both spouses income added to Line1 (Wages...)

Based on your experience this is how you have been doing this on one 1040? Is the spouse also using Form 2555 exclusion to exclude Canadian income?

Any points you have experience on would be appreciated. If you can provide insight into what you do that would be helpful.

I had drafted up my 1040NR and pro forma 1040. My 1040 as a trial doesn't include my husbands income yet. It was easier for me just to do it that way initially when I also did the calculation to the 1040NR. Just did it as a test trial for the calculation only.

But if I do add my husbands income which I expect to do, this is where I get really confused. I thought I was sure before.

Posts I was reading make it seem simple until I actually started doing it.

Thanks.

adeboloj
Posts: 38
Joined: Fri Mar 24, 2017 10:50 am

Re: Article XXV for Canadian Residents

Post by adeboloj » Sun Mar 24, 2019 7:05 pm

Sorry @nikitapunch, I posted a formula based on thread from 2014/15 but Fan8899 said its not correct!

FAN8899 or Nelsona, Please could you assist here.
What is the correct formula for the tax rate on 1040NR for 2018, the form is significantly different as such formula will be different as well.

Thank you for your response!

adeboloj
Posts: 38
Joined: Fri Mar 24, 2017 10:50 am

Re: Article XXV for Canadian Residents

Post by adeboloj » Sun Mar 24, 2019 7:07 pm

adeboloj wrote:
> Sorry @nikitapunch, I posted a formula based on thread from 2014/15 but
> Fan8899 said its not correct!
>
> FAN8899 or Nelsona, Please could you assist here.
> What is the correct formula for the tax rate on 1040NR for 2018, the form
> is significantly different as such formula will be different as well.
>
> Thank you for your response!


by adeboloj » Sat Feb 23, 2019 2:19 am

is this accurate for year 2018?

1040NR[LINE 42] = 1040NR[LINE 41] * 1040[LINE 11] / 1040[LINE 10]

Complete 1040NR up till line 41, then complete 1040 up till line 11.
And this will be my xxv (2) 1040NR.

Fan8899
Posts: 30
Joined: Fri Dec 28, 2018 8:16 pm

Re: Article XXV for Canadian Residents

Post by Fan8899 » Tue Mar 26, 2019 1:09 pm

I think the formula above for 2018 pro forma 1040 and 1040 NR is correct, but keep in mind, some people may use 1040NR-EZ instead of 1040NR,
then line no. may be different, it is more important to understand the concept of the formula instead of line no. also it should be XXV(4), not (2).

mackayr
Posts: 63
Joined: Wed Apr 14, 2010 9:37 pm

Re: Article XXV for Canadian Residents

Post by mackayr » Tue Mar 26, 2019 8:22 pm

Adding my two cents to try to clarify the issues around "the formula"

The theory behind the formula is merely to determine the tax RATE which would apply to ALL income if taxed as US citizens/residents, and then apply that tax RATE to the income on the 1040NR (ie. only the US source income that would otherwise be reported on the US return.

I think a simple way to write the formula is:

1040NR taxable income
____________________ X 1040 Tax = 1040NR Tax

1040 taxable income

For example:
Single non-resident (resident of Canada)
2018 tax year
$11,000 US pension (effectively connected to US trade or business)
$2,000 Canadian pension
No itemized deductions are applicable

1040NR taxable income is $11,000 (ie. only the US pension)
1040 taxable income on the pro forma return would be $13,000 ($11k US pension plus $2k Canadian pension, which would have been taxed if the individual had been US citizen/resident)

1040NR tax would have been $1,133 (since no exemptions in 2018 and no itemized deductions in this case)
1040 tax would have been $99 (ie. taxable income of $13k less standard deduction of $12k = $1k = $99 tax)

Adjusted 1040NR tax therefore would be:

(11,000 / 13,000) X 99 = $84
Since $84 < $1,133, taxpayer would file with application of XXV to pay the lower tax.

mackayr
Posts: 63
Joined: Wed Apr 14, 2010 9:37 pm

Re: Article XXV for Canadian Residents

Post by mackayr » Tue Mar 26, 2019 8:52 pm

Well ... the information I just posted is correct with respect to the formulas, but incorrect with respect to the status of the taxpayer. Apparently this provision (XXV(3)) only applies to married individuals with income from employment.

Perhaps someone can help me then with this:

Would XXV(1) provide for a similar calculation or provision for single taxpayers?

Case in point:
Single retired individual with:
$1.4k US pension
$10k US SS
$6K Canadian OAS
Resident in Canada

As a resident of Canada, the tax treaty provides that only her US pension is taxable in the US. Previously, she would just file a 1040NR, claim the $4k exemption and get all her tax back. Now that the exemptions are eliminated, and she has no applicable itemized deductions, she's paying $140 in tax. Can she file a 1040NR with a 1040 Pro Forma and adjust the tax accordingly? Obviously in her case, the US SS and Canadian OAS would all be exempt, resulting in Nil tax owing.

This hasn't been an issue until this year, and I'm not forced to better understand the provisions of article XXV.

nikitapunch
Posts: 24
Joined: Wed Sep 02, 2015 10:21 pm
Location: Canada

Re: Article XXV for Canadian Residents

Post by nikitapunch » Fri Mar 29, 2019 12:58 pm

I recall the tax accountant I consulted with that one cannot do pro forma with pension income. You may want to double check that.

And this calculation is correct from you. What I had also yielded the same result for me but just in a different format/order.

1040NR taxable income
____________________ X 1040 Tax = 1040NR Tax

1040 taxable income

adeboloj
Posts: 38
Joined: Fri Mar 24, 2017 10:50 am

Re: Article XXV for Canadian Residents

Post by adeboloj » Sat Mar 30, 2019 7:31 am

Thank you Mackayr for this explanation and yes i am filling as a married Canadian citizen.
The formula i posted will be verified with what you sent but with Nikitapunch confirming this, then it should be good, i was only concern when fan8899 said thats not the correct formula at first. More so pension is not applicable in my case now.
Thank you everyone!

nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Article XXV for Canadian Residents

Post by nelsona » Sat Mar 30, 2019 9:53 am

Application of XXV(3) is limited to US wages, which are effectively connected on 1040NR. Any other US-sourced income taxable to non-residents would be reported on the NEC table and taxed at the treaty rates.

Cdn resident taxpayers always have the option of filing a TRUE 1040, reporting all world income, and being taxed accordingly, using any deductions, credits exemptions, that a US citizen living in Canada would.
Nelsona Non grata. Non pro. Search previous posts. Taking period between now and June off. Will only answer sporadically.

nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Article XXV for Canadian Residents

Post by nelsona » Sat Mar 30, 2019 10:02 am

The "rate" is simple. All that has changed are the line numbers:

RATE pro forma 1040 line 11 divided by 1040 Line 11. Pure and simple. You stop the 1040 at this point.

Then your 1040NR is filled out completely. once you get to line 42, instead of using the tables, you use Line 41 * RATE.

Then you go on with the rest of 1040NR, including NEC income tax, child tax credit, etc.

And this OONLY APPLIES to XXV(3) for married Cdn residents with US wage income.

For any other XXV application, a real 1040 is submitted.
Nelsona Non grata. Non pro. Search previous posts. Taking period between now and June off. Will only answer sporadically.

adeboloj
Posts: 38
Joined: Fri Mar 24, 2017 10:50 am

Re: Article XXV for Canadian Residents

Post by adeboloj » Sun Mar 31, 2019 10:38 am

Hello,

Can someone please help me here,
I am completing a 1040 proforma, only one income on W2 and the second is T4, Nelsona mentioned that you fill 1040 as if all income are from the U.S.,
I converted income on T4 to U.S. and input on W2 for my spouse but having error on software with direct conversion of CPP/EI to U.S SS & Medicare!
Am i doing the right thing or this is not to be on W2 session.
From what i gathered, you fill 1040 as if both income and every other things were in the U.S.

Thank you

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