# Reporting Canada Pension and OAS Benefits on a 1040



## Booth44

This situation should be simple but I haven't found any definitive answer on how to handle the following:

Pension recipient is a US citizen resident in Canada. 

Pensions received are:

1)US Social Security
2)Canada Pension retirement benefits, and 
3)Canada Old Age Security Pension.

The recipient has filed a Canadian Tax return including all three pensions on the return, and paid the resulting Canadian income taxes. Per Pub 54 this is clearly the correct course of action as she is a Canadian Resident. So far so good.

The recipient also needs to file a US 1040 as a US citizen, but I don't see exactly where/how this pension income is supposed to be listed. According to Pub 54 "Under certain treaties, U.S.
social security benefits are exempt from U.S. tax if taxed by the country of residence..." and it goes on to say the same for similarly-structured social security benefits of foreign countries. Clearly Canada's CPP and OAS qualify under the US-Canada treaty, so I understand that there is no tax liability on the US return. But for the life of me I can't figure out how you are supposed to show these amounts on the 1040 form. Pensions don't qualify as 'earned income' so presumably I can't use the FEIE mechanism. 

Maybe I'm missing something but I can't find any guidance from the IRS on this (which seems bizarre to me since there must be tens of thousands of Canadian residents in this exact situation - but hey, whatever). Is it possible that you don't show the pensions at all on the 1040? Do you dummy up your own FEC form showing the actual foreign pension amount on line 16a and $0 on 16b and still list the SS on its own line?

How have people here handled this?


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## maz57

You don't report the Canadian pensions on Form 1040. From the 1040 instructions, "you must report all income except income that is exempt from tax by law". Under the Canada/US tax treaty, government pensions are taxable only in the country of actual residence. So if you are a US person who lives in Canada, CPP, OAS, and US Social Security are all exempt from US tax and will only be taxed by Canada.

When filling out a Form 1040 there is no need to even report Canadian government pensions because they are exempt from US tax. A Canadian T4A-P or T4A-OAS will be meaningless to the IRS anyway. There is a line for US Social Security and you can enter the gross amount on Line 20a but the taxable amount on Line 20b will be zero. (SSA shouldn't be withholding anything from her SS benefit.)

At least as far as government pensions are concerned, the US has agreed to Residence Based Taxation for US citizens who reside in Canada. Go figure.

Don't forget the 15% deduction for US SS on her Canadian return. (Line 256.)


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## BBCWatcher

maz57 said:


> You don't report the Canadian pensions on Form 1040.


There is a place to report that income: Line 16a (IRS Form 1040, at least the 2015 edition).

Keep in mind that there is no statute of limitations if you fail to report income. There is a statute of limitations if you do, truthfully. For that reason alone, even if you might have a colorable argument that the instructions say you can do something different, I recommend reporting the U.S. tax exempt pension (foreign social security) income on Line 16a. Page 21 of the instructions to IRS Form 1040 seems to back me up on that approach. ("Report distributions from foreign pension plans on lines 16a and 16b." To which I would add that only the taxable portion, if any, of a foreign pension plan distribution is reportable on 16b -- as the instructions later elaborate.)


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## Bevdeforges

Probably safest to report the foreign pension on line 16a, with 0 in the 16b line. 

US SS benefits go on line 20 and are subject to the worksheet that is part of the instructions to form 1040. If the recipient is filing married, filing separately, 85% of the SS benefit is subject to US tax. (Yeah, bummer.) But otherwise, the taxable portion is based on how much other income he or she has.
Cheers,
Bev


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## iota2014

I agree with maz57. The 1040 instructions clearly say that income which is exempt under treaty can be excluded.

Personally I can't see why a person would choose to report exempt income when the IRS says you should not. Although I'm British rather than Canadian, I also had to consider the question of whether or not I should report my exempt pension income on the 1040. Having read the 1040 instructions, which say that exempt income doesn't have to be reported, I then checked out whether I needed to report this treaty position on 8833. The answer is no - the reporting requirement is specifically waived for exempt pension income.

The IRS is a tax agency, not God. It's not necessary to tell them stuff they don't even want to know, like a sinner in confession. Why would you?


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## maz57

IRS Publication 17, page 7 and Publication 54, page 3 both have the same definition of Gross Income: 

"This includes all income you receive in the form of money, goods, property, and services that isn't exempt from tax."

The US/Canada treaty clearly states that all government pensions are taxable only in the country of actual residence, i.e., for residents of one country by treaty those pensions are exempt from tax in the other country. For a US citizen living in Canada, all government pensions are therefore exempt from US tax and are not included in Gross Income. In the case of the US and Canada there are so many people who go back and forth during their working lives and pay into both pension systems the two governments seem to have agreed to simplify things for retirees. This is not my interpretation; I've gotten it from several Canada/US cross border tax specialists.

In a practical sense, not reporting exempt income at all vs. reporting it and then excluding 100% amounts to the same thing; either way it never makes it to Line 22 on the 1040. Where it might make a difference is when determining whether one meets the threshold for having to file a US return at all.


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## iota2014

> In a practical sense, not reporting exempt income at all vs. reporting it and then excluding 100% amounts to the same thing; either way it never makes it to Line 22 on the 1040. Where it might make a difference is when determining whether one meets the threshold for having to file a US return at all.


Yep. That was the case for me. A huge relief, as it must be for many pensioners who discover that because their income comes only (or mostly) from exempt pension income, they can stop trying to wrestle their way through the US tax code.


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## Bevdeforges

Just be aware that the Social Security and tax treaty with the UK and Canada is a bit different from most of the other tax treaties with regard to taxation of US social security. This, from the IRS publication 915 on Social Security benefits:



> U.S. citizens residing abroad. U.S. citizens who are residents of the following countries are exempt from U.S. tax on their benefits.
> 
> Canada.
> 
> Egypt.
> 
> Germany.
> 
> Ireland.
> 
> Israel.
> 
> Italy. (You must also be a citizen of Italy for the exemption to apply.)
> 
> Romania.
> 
> United Kingdom
> .


This is for the US Social Security - not the foreign pensions. But check the tax treaty if you're living elsewhere.
Cheers,
Bev


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## iota2014

Booth44 said:


> Maybe I'm missing something but I can't find any guidance from the IRS on this (which seems bizarre to me since there must be tens of thousands of Canadian residents in this exact situation - but hey, whatever). Is it possible that you don't show the pensions at all on the 1040?


Found a bit of explicit, Canada-specific guidance:



> *2. Are the Canada Pension Plan and Canadian Old Age Security benefits taxable? If they are, please tell me where they should be entered on Form 1040.*
> 
> The taxation of payments received from Canadian retirement programs that are similar to the U.S. Social Security system receive special tax treatment due to an income tax treaty between the United States and Canadian governments. The way this income is taxed depends on the recipient’s residence.
> 
> The special tax treatment applies to payments receive from the following Canadian retirement programs: Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS)
> 
> If the recipient is a resident of the United States, the benefits:
> are taxable only in the United States,
> are treated as U.S. social security benefits for U.S. tax purposes, and
> are reported on Form 1040, U.S. Individual Income Tax Return (or Form 1040A) on the line on which U.S. social security benefits would be reported.
> 
> *If the recipient is a U.S. citizen or lawful permanent resident (green card holder) who is a resident of Canada, the benefits are taxable only in Canada.*


https://www.irs.gov/Individuals/Int...-International-Individual-Tax-Matters#TopFAQs


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## maz57

Good find! Its nice to have a definitive answer from the IRS on a subject. There are so many grey areas, but this particular one is crystal clear. Too bad a person has to scan so many pages of so many publications to find this definitive answer, but we are dealing with the most complex tax code in the world!


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## iota2014

I hazard a guess that the reason this particular island of clarity exists, is probably due to the IRS wanting to make it clear to US-resident Canadians that they DO have to report these pensions as taxable income, rather than wanting to make it clear to Canada-resident US citizens that they don't. Call me cynical.


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## Booth44

Hmmm...I didn't find the IRS statement to be quite so clear. It certainly tells US RESIDENTS where and how to report the income on their 1040 returns and it does specifically make clear to Canadian residents that the income is exempt by treaty on a U.S. return. I wish they'do tacked a line or two on to those instructions to clarify that it should go on line x, not go on the 1040 at all, or whatever for US citizens who reside in Canada.

Anyhow, the more I think about it the more I think that the general instructions of form 1040 that exempt income does not need to be listed hold sway, as maz57 pointed out.

Thanks everyone for your contributions!


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## iota2014

Booth44 said:


> Hmmm...I didn't find the IRS statement to be quite so clear. It certainly tells US RESIDENTS where and how to report the income on their 1040 returns and it does specifically make clear to Canadian residents that the income is exempt by treaty on a U.S. return. I wish they'do tacked a line or two on to those instructions to clarify that it should go on line x, not go on the 1040 at all, or whatever for US citizens who reside in Canada.


Does the tax code even allow the IRS to require reporting of non-US-taxable income? It would be interesting to know.


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## Bevdeforges

iota2014 said:


> Does the tax code even allow the IRS to require reporting of non-US-taxable income? It would be interesting to know.


The IRS is only too happy to consider anything you report, whether it's required or not.

I only stumbled onto IRS Pub 525 a couple years ago, which was the first IRS document I had found that specifically said that non-taxable income should NOT be reported on a 1040. And, it even defines (some forms of) non-taxable income (including public assistance benefits - a key area for overseas US taxpayers).
Cheers,
Bev


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## byline

Bevdeforges said:


> Just be aware that the Social Security and tax treaty with the UK and Canada is a bit different from most of the other tax treaties with regard to taxation of US social security. This, from the IRS publication 915 on Social Security benefits:
> 
> 
> 
> This is for the US Social Security - not the foreign pensions. But check the tax treaty if you're living elsewhere.
> Cheers,
> Bev


Something I'm not clear on, after reading this publication: I interpret it to mean people who worked, back and forth, between Canada and the U.S., and were paying into two different systems more or less simultaneously. I, on the other hand, worked for roughly 20 years in the United States, then moved to Canada and have worked here ever since (and have no plans to return to the U.S. to work). Does this agreement apply to someone in my situation? I always just figured that after retirement, I would collect my U.S. Social Security separately from my CPP.


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## iota2014

Bevdeforges said:


> The IRS is only too happy to consider anything you report, whether it's required or not.


Indeed, but that's not the same as the IRS being able to *require* something to be reported. The IRS not (in theory) being able to require anything not stipulated in the tax code. 



> I only stumbled onto IRS Pub 525 a couple years ago, which was the first IRS document I had found that specifically said that non-taxable income should NOT be reported on a 1040. And, it even defines (some forms of) non-taxable income (including public assistance benefits - a key area for overseas US taxpayers).


Interesting. I should have read that before I filed the 8854.


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## iota2014

byline said:


> Something I'm not clear on, after reading this publication: I interpret it to mean people who worked, back and forth, between Canada and the U.S., and were paying into two different systems more or less simultaneously. I, on the other hand, worked for roughly 20 years in the United States, then moved to Canada and have worked here ever since (and have no plans to return to the U.S. to work). Does this agreement apply to someone in my situation? I always just figured that after retirement, I would collect my U.S. Social Security separately from my CPP.


Which agreement do you mean?

In the UK, US SS is exempt from US tax (even for US citizens) under the US/UK treaty, regardless of whether it's a totalization benefit or based entirely on US earnings. 

I receive a totalization benefit from the US, and a UK social security pension from the UK - both are taxable by the UK but are not US-taxable (even for US citizens), under the US-UK treaty. The payment of one has no effect on the payment of the other.


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## BBCWatcher

maz57 said:


> You don't report the Canadian pensions on Form 1040. From the 1040 instructions, "you must report all income except income that is exempt from tax by law".


Maz57, that's some _very_ selective, creative quoting. Here's the exact quote:

_*Generally*, you must report all income except income that is exempt from tax by law._

(Emphasis mine.) Like I said, the statute of limitations runs when you report income and doesn't if you don't. This forum is full of psychological reports of members not being able to sleep well. If you want to sleep well, here's a way to sleep well: Line 16a and 16b are on the form, and they can be different numbers. (Otherwise there wouldn't be two different spots on the form.) I suggest using them.

As it happens, if it ever came to it, I don't think you'd get very far with a judge arguing that you didn't have to report nontaxable income when the form itself provides for that possibility, and the instructions say "generally." Here's an exception. It's right on the form. Line 8 is another exception, also right on the form. You can't logically ascribe to the belief that tax exempt income is never reportable when the form explicitly requires reporting tax exempt income -- that logic doesn't fly. And I don't think it would ever fly with a judge. Otherwise Line 16a and 16b would always be exactly equal, and that makes no logical sense whatsoever.

I think this one falls into the category "Do not taunt Happy Fun Ball."


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## byline

iota2014 said:


> Which agreement do you mean?
> 
> In the UK, US SS is exempt from US tax (even for US citizens) under the US/UK treaty, regardless of whether it's a totalization benefit or based entirely on US earnings.


I'm referring to the Totalization Agreement with Canada: https://www.ssa.gov/international/Agreement_Pamphlets/canada.html

I think the area I'm confused on has less to do with taxation, and more with the combining of U.S. and CPP credits in order to receive a benefit. I always assumed they would be entirely separate. I'm not sure I even paid in enough, while I was working in the U.S., to receive Social Security benefits. So I really need to check this out and find out what I qualify for.


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## iota2014

BBCWatcher said:


> Maz57, that's some _very_ selective, creative quoting. Here's the exact quote:
> 
> _*Generally*, you must report all income except income that is exempt from tax by law._
> 
> (Emphasis mine.)


Look a little further. It says:



> *Foreign-Source Income*
> 
> You must report unearned income, such as interest, dividends, and pensions, from sources outside the United States unless exempt by law or a tax treaty.





> As it happens, if it ever came to it, I don't think you'd get very far with a judge arguing that you didn't have to report nontaxable income when the form itself provides for that possibility, and the instructions say "generally."


That's a little far-fetched, isn't it? What would be the statutory offence being prosecuted, and what outcome would the IRS be seeking?


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## iota2014

byline said:


> I'm referring to the Totalization Agreement with Canada: https://www.ssa.gov/international/Agreement_Pamphlets/canada.html
> 
> I think the area I'm confused on has less to do with taxation, and more with the combining of U.S. and CPP credits in order to receive a benefit. I always assumed they would be entirely separate. I'm not sure I even paid in enough, while I was working in the U.S., to receive Social Security benefits. So I really need to check this out and find out what I qualify for.


It doesn't make a lot of sense, I agree. It's just a device they've invented to achieve the desired end, which is to allow one country's "time worked" credits to count towards the minimum for the other country. The actual benefits are still paid completely separately.

I was already receiving my full UK State Pension when I heard about the UK Totalization Agreement. I only ever worked for about 2.5 years in the US, before I left, so I wasn't eligible for a SS pension. But when I heard about this Agreement, I put in a claim, and after a few months I started receiving a small pension. Soon it will have covered the $2350 I paid to renounce, which is very satisfying.


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## BBCWatcher

Does anybody have a convincing argument to offer why there are two lines (Lines 16a and 16b) if the IRS doesn't want U.S. tax exempt income included in Line 16a? Because they had extra ink and wanted to use it on 1040? 

Look, if you want to try to thread this needle it's up to you. I don't know why you'd be struggling so hard in this way when all you're doing is failing to start the statute of limitations clock on this income. That's...weird.


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## Booth44

BBCWatcher said:


> Maz57, that's some _very_ selective, creative quoting. Here's the exact quote:
> 
> _*Generally*, you must report all income except income that is exempt from tax by law._
> 
> (Emphasis mine.) Like I said, the statute of limitations runs when you report income and doesn't if you don't. This forum is full of psychological reports of members not being able to sleep well. If you want to sleep well, here's a way to sleep well: Line 16a and 16b are on the form, and they can be different numbers. (Otherwise there wouldn't be two different spots on the form.) I suggest using them.


Fair point, but I'm not so sure this approach maximizes the taxpayer's chances of sleeping well. If one gets peace of mind from minimal contact from tax authorities then I guess the relevant question is this:"Is the IRS more likely to follow up on the situation where a taxpayer claims a positive amount on 16a and a zero on 16b, or the situation where no income is reported in the first place. 

My hunch is the former, (but I don't work for the IRS!)


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## iota2014

BBCWatcher said:


> Does anybody have a convincing argument to offer why there are two lines (Lines 16a and 16b) if the IRS doesn't want U.S. tax exempt income included in Line 16a?


Partially exempt pensions and annuities, say the 1040 instructions for Line 16a and 16b (p. 26).



> Look, if you want to try to thread this needle it's up to you. I don't know why you'd be struggling so hard in this way when all you're doing is failing to start the statute of limitations clock on this income. That's...weird.


Speaking for myself, I was very pleased when I realized exempt pension income should be excluded, because that brought my Gross Income below the filing threshold. But I agree, as Maz57 has already said, that if a return is going to be filed regardless of whether exempt pension income is excluded, it doesn't make any practical difference whether it's excluded, or reported on Lines 16a-b. See the earlier posts on this point, upthread.


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## BBCWatcher

iota2014 said:


> Speaking for myself, I was very pleased when I realized exempt pension income should be excluded, because that brought my Gross Income below the filing threshold.


Right, but that's a different situation. Also with no statute of limitations clock started, but in that case you've got a payoff (not having to file a tax return).



> But I agree, as Maz57 has already said, that if a return is going to be filed regardless of whether exempt pension income is excluded, it doesn't make any practical difference whether it's excluded, or reported on Lines 16a-b. See the earlier posts on this point, upthread.


It makes a difference in terms of starting the statute of limitations clock in order to put that income "to bed," buried in the past. Ergo, if you need to file, put that income on Line 16a. Get it done, dusted, and buried.

There's a core principle in compliance: "don't be a jerk." You can use a stronger word if you prefer. Tax authorities (and other authorities) tend to pursue jerks that come to their attention. It pays to be transparent and open, _especially_ if there's no upside in behaving otherwise. Occasionally one must be a jerk, but one shouldn't go out of one's way to be one.


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## Bevdeforges

OK, OK, and I contend that 452 angels can dance on the head of a pin. (Unless, of course, it's a non-standard pin made outside the US.)

Line 16 is intended for reporting "pensions and annuities" as defined in the IRS publication 575 or Tax Topic 410 on the IRS website. Many (if not most) tax treaties (NOT the social security treaties) have something in them (usually around Article 18 or so) that likens a foreign source government pension to US Social Security, which is covered in a different IRS publication and tax topic. But no, a foreign government pension is not reported on line 16 according to the research I've been doing recently.

Pub 525 says NOT to report non-taxable income on your 1040 and that's good enough for me where the relevant tax treaty says that a government pension (i.e. one that is the equivalent of a US "social security" pension) is not taxable except by the source state. 

US Social Security is normally subject to a worksheet "test" to determine if it's taxable or not (based on the total of your other income and your filing status), but in those treaties where it's taxable by the country of residence only (UK and Canada, as far as I know) then it's not taxable and therefore not reportable.

My comment about the IRS being only too happy to "let" you report stuff you don't have to report refers to the fact that, if you did report something "extra" and wind up having to pay tax on it, I really wouldn't hold my breath waiting for the IRS to return your overpayment to you. They just don't check each return all that carefully. 
Cheers,
Bev


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## iota2014

BBCWatcher said:


> Right, but that's a different situation. Also with no statute of limitations clock started, but in that case you've got a payoff (not having to file a tax return).


That's incorrect. I am _not_ a criminal and I think you owe me an apology. You're the one who's being a jerk, throwing around scare words like "statute of limitations" to imply criminality, even though you don't seem to be able to explain what the crime is that you're accusing me of having committed, and are warning the OP not to commit - unless there's a "payoff" of course, which, you imply, would make it reasonable to commit crime.



> There's a core principle in compliance: "don't be a jerk." You can use a stronger word if you prefer.


You clearly _do_ want to use a stronger word. I don't know what's stopping you given that you've already been completely offensive.


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## maz57

BBCWatcher said:


> Maz57, that's some _very_ selective, creative quoting. Here's the exact quote:
> 
> _*Generally*, you must report all income except income that is exempt from tax by law._
> 
> (Emphasis mine.) Like I said, the statute of limitations runs when you report income and doesn't if you don't. This forum is full of psychological reports of members not being able to sleep well. If you want to sleep well, here's a way to sleep well: Line 16a and 16b are on the form, and they can be different numbers. (Otherwise there wouldn't be two different spots on the form.) I suggest using them.
> 
> As it happens, if it ever came to it, I don't think you'd get very far with a judge arguing that you didn't have to report nontaxable income when the form itself provides for that possibility, and the instructions say "generally." Here's an exception. It's right on the form. Line 8 is another exception, also right on the form. You can't logically ascribe to the belief that tax exempt income is never reportable when the form explicitly requires reporting tax exempt income -- that logic doesn't fly. And I don't think it would ever fly with a judge. Otherwise Line 16a and 16b would always be exactly equal, and that makes no logical sense whatsoever.
> 
> I think this one falls into the category "Do not taunt Happy Fun Ball."


Good grief, BBC. Iota's Post # 9 quotes the exact IRS explanation of how government pensions are to be treated in this situation: 

"If the recipient is a U.S. citizen or lawful permanent resident (green card holder) who is a resident of Canada, the benefits are taxable only in Canada".

If those pensions are taxable only in Canada, that means that because of the treaty between the two countries they are EXEMPT from US tax, which in turn means they are not to be included in Gross Income when filing a US return. Nothing will "come to it" and there won't be a judge bothering with such silly trivialities. (As if a US judge is going to go to Canada to see if he can stir up some sort of cross-border dispute.) You, the master wordsmith, forgot to give any weight to the word "except" which clearly explains the "exception" to the "general" rule. If the IRS really wanted exempt income to be reported on a 1040, the instructions would instead say "You must report all income even if that income is exempt from US tax by law". But that's not what it says.


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## BBCWatcher

There is plenty of nontaxable income -- or even negatively taxed income! -- reported on a 1040. Frankly I think you folks are pretty crazy, but what else is new.


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## iota2014

maz57 said:


> If those pensions are taxable only in Canada, that means that because of the treaty between the two countries they are EXEMPT from US tax, which in turn means they are not to be included in Gross Income when filing a US return. Nothing will "come to it" and there won't be a judge bothering with such silly trivialities. (As if a US judge is going to go to Canada to see if he can stir up some sort of cross-border dispute.)


In practice, if a Canada resident follows the 1040 instructions and the FAQ guidance, and doesn't report the pensions, it seems unlikely the IRS will ever notice.

According to IRS Tax Topic 652 (https://www.irs.gov/taxtopics/tc652.html), the IRS possesses something called the Automatic Underreporter. This sounds like a bot designed to generate penalty opportunities, but disappointingly turns out to be nothing more than a form letter function.



> The Automated Underreporter (AUR) function sends out a Notice CP-2000 if you did not report income reported to the IRS by a payer or if it appears that payments, credits and/or deductions are overstated. The CP-2000 is not a bill. It is a proposal to adjust your income, payments, credits, and/or deductions.


These exempt Canadian pensions aren't reported to the IRS, as far as we know - at least not legally. So the Automated Underreporter will not be activated. 

Even if the AU did get into action, perhaps nudged by a human, it's hard to see what a CP-2000 Notice could sensibly propose, given that excluding the exempt pensions does not have any effect on the tax due.


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## ForeignBody

iota2014 said:


> ... scare words like "statute of limitations" to imply criminality...


Statute of limitations does not imply criminality on anyone's part!

It is perfectly reasonable to suggest that the sooner the statute of limitations starts the sooner it ends and then the IRS cannot come after you (with a few exceptions). In other words it protects the taxpayer.


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## iota2014

ForeignBody said:


> Statute of limitations does not imply criminality on anyone's part!
> 
> It is perfectly reasonable to suggest that the sooner the statute of limitations starts the sooner it ends and then the IRS cannot come after you (with a few exceptions). In other words it protects the taxpayer.


No statute of limitation applies if there's no risk of adverse action. And there _is_ no risk of adverse action because I haven't committed any offence, either under US law or under UK law. The IRS doesn't have any power to "come after me," and I'm not in need of protection.

If a person _is_ vulnerable to being "come after" by the IRS, the only sensible protection is to sort the problem out, not to sit gnawing fingernails for three years or six years or forever, hoping not to get caught.

It's sad that an ongoing threat to "come after" a taxpayer should be reconstructed as protection.


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## BBCWatcher

iota2014 said:


> No statute of limitation applies if there's no risk of adverse action.


No, that's not correct. You're conflating adverse _outcomes_ with adverse actions. An expired statute of limitations also removes a matter from review, not only from liabilities.

The example of Dennis Hastert is instructive here (only to illustrate the principle, not for the matters involved). Hastert could not be prosecuted for child sexual abuse since the statute of limitations for those offenses had passed. However, prosecuting authorities got very upset with his original sin, it's fair to say, and prosecuted him for all offenses that occurred later that they could prosecute him for. And the judge in the case, it's also fair to say, gave him the maximum (or near maximum) penalties that he could for the still prosecutable offenses. That is to say that the original sin was taken into consideration in sentencing even though the original sin was not itself prosecutable.

Again, I'm not comparing failure to use Line 16a at least as the instructions allow it to be used with what Dennis Hastert did. However, what I am saying is that, unlike Dennis Hastert's case, there is no point, no upside in being evasive, nontransparent, non-open here. None. No advantage derived. It's just not being forthcoming for no good or even mediocre reason. So whatever income you're not forthcoming about, authorities can later question as far into the future as they want. Authorities' questions themselves are then slightly risky if you do something stupid, like Dennis Hastert did. (He panicked.) Authorities are not be able to go after you for that particular income, but they can go after you for _anything else_ that is wrong. And they're more inclined to do so if you're evasive, nontransparent, non-open, even if you can legally get away with being that for that _particular_ issue.

I remain surprised that this basic enforcement/compliance concept is still apparently confusing. But the bottom line is you should never conduct yourself according to what you can legally get away with, individual act for act. There is merit here in acting like a boy scout or girl scout, to giving the benefit of the instructional/regulatory doubt to the tax authority. You should only consider acting otherwise if there is _merit_ in acting otherwise. Not here. Line 16a is there, so use it! And start the statute of limitations clock. There is no upside in trying to thread this needle, to go out of your way not to put some income on Line 16a. There is potential downside in trying to thread this needle. Effectively you deduct some number of points from your "trustworthiness score" (your boy scout/girl scout score), and that's not a wise thing to do.


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## Booth44

BBCWatcher said:


> Line 16a is there, so use it! And start the statute of limitations clock. There is no upside in trying to thread this needle, to go out of your way not to put some income on Line 16a. There is potential downside in trying to thread this needle. Effectively you deduct some number of points from your "trustworthiness score" (your boy scout/girl scout score), and that's not a wise thing to do.


Except...as Bev noted above, 16a and 16b are not meant for this type of (foreign, social security-type) pension income to begin with.

The IRS says right on form 1040 not to include exempt income as a general rule, i.e. unless they tell you otherwise.

Reference to more than one IRS publication confirms explicitly that this type of income (pension income from CPP and OAS) is tax exempt for non-US residents. So the IRS is clearly not making this income an exception to the general rule that would require inclusion.

It seems clear (to me) that including the income on line 16a and then zeroing it out on 16b is much more likely to raise IRS eyebrows than simply not showing it in the first place, especially as the IRS does not receive any sort of information slip from the issuer (Service Canada). Additionally, the IRS would reasonably expect that CRA would handle this matter, as residents of Canada to have a tax liability ONLY to Canada on this income, per the Tax Treaty between the two countries.


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## Bevdeforges

As I understand it, "pension and annuity" income is the kind of income where you have to make an allocation between what you paid in and what you're receiving. You are taxed only on the part of the payment that represents interest or investment income and not on the part you paid in. Described in excruciating detail in that IRS publication on pensions and annuities. 

Social security is a separate type of income - usually subject to provisions of the tax treaty. (For tax purposes, the tax treaty, not the "social security treaty" which deals only with mutual recognition of qualifying credits for a government sponsored pension.)

In any event, they sure don't make it easy.
Cheers,
Bev


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## iota2014

Booth44 said:


> It seems clear (to me) that including the income on line 16a and then zeroing it out on 16b is much more likely to raise IRS eyebrows than simply not showing it in the first place, especially as the IRS does not receive any sort of information slip from the issuer (Service Canada). Additionally, the IRS would reasonably expect that CRA would handle this matter, as residents of Canada to have a tax liability ONLY to Canada on this income, per the Tax Treaty between the two countries.


I don't think IRS eyebrows typically go into action for less than six digits. 

There's no tax due, and no possibility of slapping you with a penalty, so there's no money in it for them, and no risk in it for you. Be glad it's not a RRSP.

HodgenLaw PC - International Tax


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## ForeignBody

iota2014 said:


> No statute of limitation applies if there's no risk of adverse action. And there _is_ no risk of adverse action because I haven't committed any offence, either under US law or under UK law. The IRS doesn't have any power to "come after me," and I'm not in need of protection.
> 
> If a person _is_ vulnerable to being "come after" by the IRS, the only sensible protection is to sort the problem out, not to sit gnawing fingernails for three years or six years or forever, hoping not to get caught.
> 
> It's sad that an ongoing threat to "come after" a taxpayer should be reconstructed as protection.


I am happy for you that you are sure that you are 100% compliant with every detail of the tax code as it applies to you and that there is no part of your tax affairs on which the IRS may take a different view.

As you know we often read here different views on how to resolve a particular IRS issue. There is often no clear right or wrong answer. Therefore, there is some uncertainty. Some people can readily handle that, others have more difficulty.

Many who come to this site refer to anxiety, stress, unable to sleep etc having discovered that they are not compliant. Take, for example, those going through the streamlined procedure and the frustration that "no news is good news". They do not know if the IRS now regard them as compliant or not. For them the statute of limitations does eventually provide finality, albeit some time down the road.

It is not an issue of criminality it is simply that the tax code is so complex and confusing, especially in relation to foreign matters.


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## iota2014

iota2014 said:


> Speaking for myself, I was very pleased when I realized exempt pension income should be excluded, because that brought my Gross Income below the filing threshold. But I agree, as Maz57 has already said, that if a return is going to be filed regardless of whether exempt pension income is excluded, it doesn't make any practical difference whether it's excluded, or reported on Lines 16a-b. See the earlier posts on this point, upthread.


It dawns on me that perhaps it does make a difference.

You're not required to report income that's exempt by law or treaty. If you do choose to report it, you're basically throwing away the "exempt" status and voluntarily submitting the taxable/non-taxable question for IRS assessment. 

Anyone who decides to do this might want to take the precaution of filing 8833 also - even though it's not required - in order to explain why Line 16b is zero.


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## iota2014

ForeignBody said:


> I am happy for you that you are sure that you are 100% compliant with every detail of the tax code as it applies to you and that there is no part of your tax affairs on which the IRS may take a different view.


I don't actually care about the IRS's view, I'm only concerned about not breaking the law. I'm 100% confident that I haven't broken any US or UK laws.



> As you know we often read here different views on how to resolve a particular IRS issue. There is often no clear right or wrong answer. Therefore, there is some uncertainty. Some people can readily handle that, others have more difficulty.
> 
> Many who come to this site refer to anxiety, stress, unable to sleep etc having discovered that they are not compliant. Take, for example, those going through the streamlined procedure and the frustration that "no news is good news". They do not know if the IRS now regard them as compliant or not. For them the statute of limitations does eventually provide finality, albeit some time down the road.
> 
> It is not an issue of criminality it is simply that the tax code is so complex and confusing, especially in relation to foreign matters.


The IRS uses fear and uncertainty as weapons. Their strategy is to treat all taxpayers as criminals and the "statute of limitations" threat is part of this strategy, as is the astonishing decision to label all US citizens as likely tax criminals in the eyes of the world.

Foreign taxpayers - those without significant US assets - are actually at an advantage, compared with domestic taxpayers. As long as we do in good faith what's clearly stated as required, there's no need to worry about whether the IRS agrees or not.


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## Bevdeforges

iota2014 said:


> The IRS uses fear and uncertainty as weapons. Their strategy is to treat all taxpayers as criminals and the "statute of limitations" threat is part of this strategy, as is the astonishing decision to label all US citizens as likely tax criminals in the eyes of the world.
> 
> Foreign taxpayers - those without significant US assets - are actually at an advantage, compared with domestic taxpayers. As long as we do in good faith what's clearly stated as required, there's no need to worry about whether the IRS agrees or not.


The IRS uses fear and uncertainty to try to drive a system that is based on "auto-compliance." Way back when I was in business school taking my first tax class, the prof explained that basically this is a trust-based system. There is no way - not even back then before the big budget cuts - that the IRS can carefully review and evaluate every return that is filed. The best they've ever been able to do is to run checks and comparisons against the information that is reported to them by the banks, employers, finance companies, etc. and try to find the returns with the biggest "inconsistencies" for closer investigation.

In a sense, it comes down to "it's not about YOU" - no one in the IRS ever reviews an individual tax return to see if it's "correct" except perhaps for those very few returns selected randomly for a "compliance audit" and in the current environment, they've got their hands full already with the clearly aberrant returns that appear to be dodging taxes in some manner.
Cheers,
Bev


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## maz57

iota2014 said:


> The IRS uses fear and uncertainty as weapons. Their strategy is to treat all taxpayers as criminals and the "statute of limitations" threat is part of this strategy, as is the astonishing decision to label all US citizens as likely tax criminals in the eyes of the world.
> 
> Foreign taxpayers - those without significant US assets - are actually at an advantage, compared with domestic taxpayers. As long as we do in good faith what's clearly stated as required, there's no need to worry about whether the IRS agrees or not.


Bingo! That is exactly why I decided to get rid of US citizenship. The ongoing taxpayer abuse by the IRS and the rest of US government is so distasteful and insulting I realized I would lose all self-respect if I didn't take immediate action to remove myself from their control. It wasn't about paying tax because I never owed them anything and it was extremely unlikely I would ever owe them anything.

It was shocking enough to discover that the government of a country I hadn't lived or voted in, had no income in, and had zero interaction with for over 40 years expected me to file annual tax returns. When I later discovered I was expected to annually register as a financial criminal, submit to insane reporting of ordinary local accounts because they were "foreign", submit to the pointless control of every detail of my financial life, and wasn't even allowed to take advantage of tax-advantaged perks my own government offered, the choice was pretty obvious.

Yes, expat US taxpayers do have a bit of an advantage compared to domestic US taxpayers, but the trade-off is submitting to the abuse and the life control and is not worth it in my opinion. Being a "non-resident alien" as they so quaintly put is even more advantageous! There is not a single thing I miss about being a US citizen. The curious thing is that now when I do occasionally travel there on my Canadian passport, I am treated with much more respect than they ever gave me when I traveled as "one of them" on a US passport.


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## iota2014

Bevdeforges said:


> The IRS uses fear and uncertainty to try to drive a system that is based on "auto-compliance." Way back when I was in business school taking my first tax class, the prof explained that basically this is a trust-based system. There is no way - not even back then before the big budget cuts - that the IRS can carefully review and evaluate every return that is filed. The best they've ever been able to do is to run checks and comparisons against the information that is reported to them by the banks, employers, finance companies, etc. and try to find the returns with the biggest "inconsistencies" for closer investigation.


To me, that's not a trust-based system at all. It's a gotcha!-based system.

They could just use the information they've already got, as happens in the UK and some other countries. Instead they put millions of ordinary law-abiding citizens through a kind of specialized hell, hoping to catch them in a lie or an error and thus be able to charge them extra money. Just like FATCA, the whole tax system assumes everyone's cheating and requires them to prove they're not.

No doubt all tax systems have their faults and deficiencies, but the US system takes the biscuit for meanness.


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## maz57

Bevdeforges said:


> Way back when I was in business school taking my first tax class, the prof explained that basically this is a trust-based system.


Well it might have been trust based "way back when" (now how long ago did you say that was?, LOL) but there is absolutely no trust nowadays. The IRS doesn't trust taxpayers and taxpayers don't trust the IRS. And if you happen to be an expat, the IRS really, really doesn't trust you. I would describe the present system as a "fear and intimidation using threats of fines, penalties, interest, and penalties for perjury" based system, because the IRS doesn't have the resources to go after people unless they are a whale and they can justify the considerable time, effort, and expense it would take. They know it and taxpayers know it. I do feel a little bit sorry for the IRS because they are stuck with trying to enforce this unenforceable CBT system. Even with FATCA now on line most expats have either still never even heard of CBT or simply choose to ignore the US system with no problem. 

The Canada Revenue Agency is positively friendly in comparison, although I'm sure they have some sharp teeth if they need them. A few weeks after you file, they send you a nice letter actually thanking you for filing and summarizing the state of your account to date. As I said earlier, it wasn't a hard choice for me.


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## Bevdeforges

Hey, it takes most expats to France a while to figure out that, in the case of a question or problem, the FIRST place to go ask for help is the Fisc office! The system here is complicated, but the tax office folks are generally quite helpful. AND the Fisc will refund overpayments, no problem.

However, what I meant by "trust" is that the IRS is more or less forced to trust certain elements of your tax returns. Take overseas "earned income" (er, I mean, "salary"). For US residents, they have a W-2 to match up with whatever you report. (And technically, you are supposed to send in the W-2 with your return, though not these days with e-filing.) They've got nothing for overseas salary and pretty much have to take your word for it.

I suspect that FATCA is the thin wedge to pry more detailed information out of overseas banks, but at this point at least, the only information on your foreign bank accounts that they have is year-end balance (from FATCA) and high balance (from your FBAR) but none of the "innies and outies" which is where I suppose they'd be able to work out specific transactions if they wanted to. And in all that, do you actually know of anyone who has been audited overseas? (When they actually had overseas offices and staff - all 12 or 15 of them.) They actually have no idea how many overseas Americans (accidental or not) there are, and tons of folks remain well off the radar, even with US birthplaces and social security numbers. Boris Johnson hadn't filed or paid taxes for years - it was only the well publicized sale of his mansion that kind of forced the IRS hand. (Not to mention the flaunting of his US citizenship.)
Cheers,
Bev


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## iota2014

maz57 said:


> Well it might have been trust based "way back when" (now how long ago did you say that was?, LOL) but there is absolutely no trust nowadays. The IRS doesn't trust taxpayers and taxpayers don't trust the IRS. And if you happen to be an expat, the IRS really, really doesn't trust you. I would describe the present system as a "fear and intimidation using threats of fines, penalties, interest, and penalties for perjury" based system, because the IRS doesn't have the resources to go after people unless they are a whale and they can justify the considerable time, effort, and expense it would take. They know it and taxpayers know it. I do feel a little bit sorry for the IRS because they are stuck with trying to enforce this unenforceable CBT system. Even with FATCA now on line most expats have either still never even heard of CBT or simply choose to ignore the US system with no problem.


As I recall, at the time I left America in the 60s the IRS was viewed with the same kind of fear as today. I still remember the anxiety even though I only worked in the US for a few years before leaving for good.

There's a telling paragraph on the IRs "History" page:


> 1952 - President Truman proposed his Reorganization Plan No. 1, which replaced the patronage system at the IRS with a career civil service system. It also decentralized service to taxpayers and sought to restore public confidence in the agency.


https://www.irs.gov/uac/Historical-Highlights-of-the-IRS

They naturally don't say so but I wonder if that was the point at which fear became the dominant strategy. Part of the general unpicking of the New Deal, and the plunge to the right as the Cold War took hold, perhaps



> The Canada Revenue Agency is positively friendly in comparison, although I'm sure they have some sharp teeth if they need them. A few weeks after you file, they send you a nice letter actually thanking you for filing and summarizing the state of your account to date. As I said earlier, it wasn't a hard choice for me.


I've only ever had to file a return in Britain during a brief period of self-employment. Most salaried employees get their taxes withheld and seldom need to interact with HMRC at all. It's by no means all roses - HMRC has plenty of problems, but terrorizing the population is not one of them.

This year I'll have to start filing again, in order to report foreign income (SS benefit). I'm expecting it to take me 20 minutes. 

What a difference it would make, for Americans, if the IRS moved to a similar system. But it seems impossible.


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## iota2014

Bevdeforges said:


> Hey, it takes most expats to France a while to figure out that, in the case of a question or problem, the FIRST place to go ask for help is the Fisc office! The system here is complicated, but the tax office folks are generally quite helpful. AND the Fisc will refund overpayments, no problem.
> 
> However, what I meant by "trust" is that the IRS is more or less forced to trust certain elements of your tax returns. Take overseas "earned income" (er, I mean, "salary"). For US residents, they have a W-2 to match up with whatever you report. (And technically, you are supposed to send in the W-2 with your return, though not these days with e-filing.) They've got nothing for overseas salary and pretty much have to take your word for it.


Yes, the gotcha! system breaks down when it comes to trying to enforce extra-territorial taxation. Not only can they not collect, in most countries, but the real problem is that they don't have the information with which to prove a case in the US courts. Hence FATCA. Unfortunately, the FATCA provisions collide with the previously-unenforced (because unenforceable) CBT legislation, with the result that ordinary non-criminal Americans everywhere find themselves being treated exactly the same as the tax evaders and the money-launderers. If CBT wasn't still languishing on the books, FATCA could have been like CRS - not applicable to anyone without offshore accounts. 



> I suspect that FATCA is the thin wedge to pry more detailed information out of overseas banks, but at this point at least, the only information on your foreign bank accounts that they have is year-end balance (from FATCA) and high balance (from your FBAR) but none of the "innies and outies" which is where I suppose they'd be able to work out specific transactions if they wanted to. And in all that, do you actually know of anyone who has been audited overseas? (When they actually had overseas offices and staff - all 12 or 15 of them.) They actually have no idea how many overseas Americans (accidental or not) there are, and tons of folks remain well off the radar, even with US birthplaces and social security numbers. Boris Johnson hadn't filed or paid taxes for years - it was only the well publicized sale of his mansion that kind of forced the IRS hand. (Not to mention the flaunting of his US citizenship.)


It will be interesting to see what Johnson does about his US citizenship once the EU referendum is over. He's pinned his colours to the Leave campaign, in the hope of replacing Cameron if Leave wins. In which case he may find it necessary or advisable tobrenounce. But if Remain wins, his chances of ever moving into Number 10 will be severely dented. In that case, he might hang on to his US citizenship. He might even have a go at the Presidency - he's mentioned the possibility more than once.


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## maz57

iota2014 said:


> It will be interesting to see what Johnson does about his US citizenship once the EU referendum is over. He's pinned his colours to the Leave campaign, in the hope of replacing Cameron if Leave wins. In which case he may find it necessary or advisable tobrenounce. But if Remain wins, his chances of ever moving into Number 10 will be severely dented. In that case, he might hang on to his US citizenship. He might even have a go at the Presidency - he's mentioned the possibility more than once.


If he takes a shot at running for President, I'll see if I can undo my relinquishment so I can vote for him.......and the day either of those two things happen, pigs will be flying all over the place. LOL! (As President, he might spearhead a movement to get rid of CBT, however.)


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## Bevdeforges

If he's going to run for President, he'd best snap to it. Given the unpopularity of the two most likely contenders, a third party candidate has a real chance this time around. But he'd probably have to declare on June 24th, right after the Brexit referendum results are known. I know plenty of folks back in the US who would vote for Mickey Mouse, Goofy or Bozo the Clown rather than have to choose between the current front runners.
Cheers,
Bev


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## iota2014

> If he takes a shot at running for President, I'll see if I can undo my relinquishment so I can vote for him.......and the day either of those two things happen, pigs will be flying all over the place. LOL! (As President, he might spearhead a movement to get rid of CBT, however.)


Unlikely. Boris looks after Boris. He's nobody's hero.



> If he's going to run for President, he'd best snap to it. Given the unpopularity of the two most likely contenders, a third party candidate has a real chance this time around. But he'd probably have to declare on June 24th, right after the Brexit referendum results are known. I know plenty of folks back in the US who would vote for Mickey Mouse, Goofy or Bozo the Clown rather than have to choose between the current front runners.


Indeed. It would be weird to see Boris and Trump running in the same campaign when they look so much alike. But I don't imagine he would try for this year - that would be unseemly, not to mention expensive. More than likely the whole idea is just fantasy and he'll never try at all.

I can't imagine he could ever get elected. Hmm, I remember saying that about Donald Trump.


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## Bevdeforges

iota2014 said:


> I can't imagine he could ever get elected. Hmm, I remember saying that about Donald Trump.


And THAT's the really really scary part of this election. It does make me quite thankful to be over here, in any event. 
Cheers,
Bev


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## maz57

I thought Bozo is one of the current front runners!


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## hankman

As I understand it, as a US (actually dual) citizen residing in Canada, the US/Canada treaty says I pay tax on gov pensions only where I reside (Canadian return) but am exempt from reporting my Canadian old age pension on my US 1040 (without getting into the question or not reporting at all or reporting it on line 16a and $0 on line 16b). what I want to know, is do I still have to report my US social security payment they send to me in Canada on the US 1040 or is even that too (SSA-1099 Soc Sec) taxed under the treaty, ONLY in the country I reside in (Canada), but NOT on the 1040 for the US, or is that always going to be taxed by the US notwithstanding the treaty and my Canadian residence?


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## Bevdeforges

Take a look at IRS Publication 915, which is available on the IRS website. On page 5 you'll find this:



> U.S. citizens residing abroad.
> U.S. citizens who are residents of the following countries are exempt from U.S. tax on their benefits.
> 
> Canada.
> Egypt.
> Germany.
> Ireland.
> Israel.
> Italy. (You must also be a citizen of Italy for the ex-emption to apply.)
> Romania.
> United Kingdom.
> The SSA will not withhold U.S. tax from your benefits if you are a U.S. citizen.


Cheers,
Bev


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