# US citizen in Canada



## RetiredAbroad (Feb 3, 2019)

My daughter is a US citizen with Canadian residency. Her husband is Canadian. This month she started a new job in Canada, and she'll travel into the US regularly on business. Since she expects to exceed 35 days in the US in 2020, it looks like she won't be able to use IRS Form 2555 anymore to exclude her foreign income from US taxes. Instead, she plans to use *Form 1116* and claim a credit in the US for her Canadian taxes -- something neither she nor I have ever done before. (I'm an expat, too.)

I assume her Canadian income tax (both Canadian federal and provincial tax) will count toward the credit. 

Question #1: *Can anything else be counted?* For instance, do mandatory Ontario health premiums or EI employment insurance deductions count as a foreign tax?

Question #2: *Is there a tax preparation package* (eg: Turbotax?)* that will work easily*, _and without snafus or hassles_, *to report her income and calculate the foreign tax credit?* If so, which version of the software should she buy next year? (She also expects a little bit of side income, mentioned below, which probably will require Schedules C & SE.)

Her overall tax situation isn't very complicated. She says she expects to receive approximately the following in 2020:


Part-time wages in Canada (Jan-Feb 2020), reported on a T4 CAD 1,500
Canadian Employment insurance received (Feb 2020) CAD 1,000
Full-time salary in Canada (Mar - Dec 2020), reported on a T4	CAD 70,000
Side income (a one-time online editing job, done in Canada)	USD 145
Other side income (private tutoring, cash) CAD 700
Canadian Bank Interest, reported on a T5 CAD 750
US Savings Account Interest (no 1099 due to small amount)	USD 1

Also, she uses "married, filing separately," and just writes "NRA"(non-resident alien) for her Canadian husband's tax ID number.

I'd appreciate any helpful, constructive advice.

Also, for comparison, if anyone knows of *a tax preparation firm that handles BOTH Canadian and US tax returns*, and does both for *a reasonable total fee*, that would be helpful. The two-country tax places I've seen advertised charge rather steep fees for each country's return.


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## Bevdeforges (Nov 16, 2007)

I would have her check the instructions for the form 1116, as I am not sure that provincial tax can be used to offset US Federal income taxes. The IRS has been adamant that only national level income tax is subject to credit.(Which rules out health care premiums or unemployment "taxes".)

Generally speaking, the major tax software packages will handle the Foreign Tax Credit - just check to see if form 1116 is covered. Whether you consider that "without snafus or hassles" is up to you. Normally for expat tax purposes, there is a certain level of fiddling around that has to be done to obtain the proper result since US tax forms are not written to take the various foreign tax laws and terminology into account.

Married, filing separately is the correct tax status - just be aware that if she is writing in "NRA" for her spouse's name and SSN she may not be able to e-file. The IRS e-filing system is notorious for dis-allowing MFS forms with NRA indicated for the spouse information. It may be necessary to print out the forms, sign them and mail them in.

She may wind up having to file multiple 1116 forms - for "earned income" and a separate one for "passive income" in order to offset any US taxes generated by her investment income.


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## NickZ (Jun 26, 2009)

EI and OHIP are not taxes. Plus EI unless things have changed are already deducted from income before calculating the Canadian taxes owed. 

https://www.canada.ca/en/financial-consumer-agency/services/financial-toolkit/taxes/taxes-3/7.html

OTOH OHIP isn't

https://turbotax.intuit.ca/tips/which-health-care-expenses-are-deductible-5303

I don't know if the US would let you deduct the health premium but it wouldn't be under the foreign tax line


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## RetiredAbroad (Feb 3, 2019)

*Thanks*

Thank you. 

Aside from Form 1116, I know how to handle the rest of my daughter's US tax reporting since it's pretty simple and straightforward. I'll read up on Form 1116. Since I'm inquiring about 2020 taxes, we've got a year to make sense of things.

I'd heard that entering NRA for the spouse in some software causes problems and necessitates paper filing. 

Is there any online filing software for US taxes that allows one to freely enter all the numerical data and do tax calculations, including Form 1116 -- sort of a software test run, so to speak -- prior to giving out personal information (name, SS#, etc) and entering a credit card number?


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## Bevdeforges (Nov 16, 2007)

RetiredAbroad said:


> Is there any online filing software for US taxes that allows one to freely enter all the numerical data and do tax calculations, including Form 1116 -- sort of a software test run, so to speak -- prior to giving out personal information (name, SS#, etc) and entering a credit card number?


Basically, no. To do your taxes online they get your info up front and very often won't allow you to print or sometimes even see your finished returns until you have paid. If your concern is retaining your data, you may want to simply buy the software version to download onto your own computer, where you can fiddle with the numbers away from prying eyes. But again, they'll have your information and you'll get ads every year from the software company seemingly forever.


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## Moulard (Feb 3, 2017)

NickZ said:


> I don't know if the US would let you deduct the health premium but it wouldn't be under the foreign tax line


Yes you can. It can be deducted as an itemised expense. However with the increase in the standard deduction, chances are that it isn't worth it.


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## Jca1 (Aug 7, 2019)

RetiredAbroad said:


> Is there any online filing software for US taxes that allows one to freely enter all the numerical data and do tax calculations, including Form 1116 -- sort of a software test run, so to speak -- prior to giving out personal information (name, SS#, etc) and entering a credit card number?


You can give TurboTax dummy personal info and run the numbers without putting in a credit card. It will show the results, but not a completed 1040, before you pay. But without seeing the completed 1040 it is difficult to tell whether the result is correct.


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## Moulard (Feb 3, 2017)

Because of the requirements to split income into different categories and to proportionally allocate foreign taxes, deductions etc I don't think you will find software that will do anything other the most basic of calculations for you. It will basically do simple arithmetic on the numbers you enter and no more...

That said, there are a couple of worked examples that used to be in IRS pubs 514 but seem to have been removed from 2014 onwards.

While this is a bit dated (2013 version of pub 514), it does have a simple and comprehensive worked example in it. 

Simple Example

https://taxmap.irs.gov/taxmap2013/pubs/p514-008.htm

Comprehensive 

https://taxmap.irs.gov/taxmap2013/pubs/p514-009.htm



I spent a couple days building out a spreadsheet using these examples to be able to do the sort of calculations you mention. Its tailored for Australia but PM me if you would like to to share it with you.


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## Jca1 (Aug 7, 2019)

I doubt it helps much, but Mitt Romney's 2011 return also has an example of a completed form 1116 on page 16 of 379.


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## RetiredAbroad (Feb 3, 2019)

*Thanks*

Thanks for the additional information, including the sample scenarios from the old Pub 514.

I just tried TurboTax online with dummy personal info, and I tried running the numbers without putting in a credit card, as suggested but, to be honest, it was not a pleasant experience. I wasted the better part of this afternoon trying to get TurboTax to do the foreign tax credit and got no clear answers. 

I think I'll encourage my daughter to find a reasonably-priced tax professional for the coming year, and I'll study the CPA-completed Form(s) 1116, along with any additional information I can find.

Thanks, again!


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## Moulard (Feb 3, 2017)

The instructions and examples are difficult to understand... like you I had to spend a day to figure it all out. 

Here is a precis.

Divide your income into passive and general categories.

Assuming you use the standard deduction proportionally divide it between the two.

Next subtract one from the other. 

What is happening so far is really no different than what happens on the straight 1040. (income minus deductions is taxable income)

Next you have to do similar with taxes paid and taxes owed...

Convert your Canadian taxes into USD and then divide that proportionally between the two categories.

Now divide your US tax owed into the two categories proportionally.

For each of the two categories subtract Canadian taxes paid from US taxes owed...

If the Canadian taxes are equal or higher to the US taxes you end up owing the US nothing and can carry over the balance.

Offer send you a simple worked example stands... just PM me


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## RetiredAbroad (Feb 3, 2019)

*Unclear*



Bevdeforges said:


> The IRS has been adamant that only national level income tax is subject to credit.


I just read the following in the IRS Instructions for Form 1116, Foreign Tax Credit

Foreign Taxes Eligible for a Credit: You can take a credit for income, war profits, and excess profits taxes paid or accrued during your tax year to any foreign country or U.S. possession, *or any political subdivision (for example, city, state, or province) of the country or possession.*


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## Moulard (Feb 3, 2017)

RetiredAbroad said:


> I just read the following in the IRS Instructions for Form 1116, Foreign Tax Credit
> 
> Foreign Taxes Eligible for a Credit: You can take a credit for income, war profits, and excess profits taxes paid or accrued during your tax year to any foreign country or U.S. possession, *or any political subdivision (for example, city, state, or province) of the country or possession.*


The issue is the other way round.. 

The Federal government recognizes foreign state taxes as eligible for credit on federal taxes. The issue is that US states don't necessarily recognize foreign taxes for credit against state taxes.

Unfortunately most (probably all) tax treaties only include Federal income taxes imposed by the Internal Revenue Code in their scope. This leaves enough wiggle-room (depending on the specific treaty text) for the states to attempt a pass on the constitutional issues related to treaties.


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