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Anne, Master Tax Preparer
Category: Tax
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Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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How to report Canadian pension on 1040?

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I am a U.S. citizen and resident receiving a pension from a Canadian company from when I worked there over 25 years ago. I received an NR4 from Canada but I do not know how to report this on my US tax return. Form 8891 does not seem to apply unless a private pension plan is treated as a RRIF. There is a tax treaty with Canada that has Canada withholding 15% as well. Is this a max and I do not need to declare any of it? Otherwise, how to I report the income & tax paid?

Submitted: 7 years ago.
Category: Tax
Expert:  Anne replied 7 years ago.

Thank you for using JustAnswer. Under the Canadian/US treaty, the total amount of your Canadian pension would be reported on line 16a of the Federal 1040 (Pensions and Annuities) and the taxable amount would be reported on line 16b. In general, if you did not contribute any $ to your pension, or if your contributions were made with "pre-tax dollars" then the whole amount would now be taxable to you.

Your pension distribution may also be subject to Canadian tax at 15%.

If any of the income reported on the NR4 is considered to be Old Age Security, then under the treaty, this portion would be treated in the same manner as any US citizen's social security for tax purposes. Please see below:

Information on the United States - Canada Income Tax Treaty

I hope this helps.

Customer: replied 7 years ago.

Thanks! It seems to me that I would then be double-taxed, once by Canada at 15% (which was already been withheld during the year at the source) and then when I report it on my 1040 lines 16a & 16b, which would be treated as regular income at whatever my incremental tax rate is. In that case, I assume I can get a foreign tax credit from form 1116, which has many lines. What do I fill in where on the 1116, assuming I can claim this? Alternatively, is it possible that the US taxable amount is $0 given the treaty and the fixed 15% withholding, or is that 15% just a stake in the ground? (My effective tax rate is 0% given deductions, so I think I have already overpaid Canada and not sure how to get that back).

Expert:  Anne replied 7 years ago.

You're absolutely correct in that you will a credit for the taxes that you pay to Canada. Unfortunately, you will pay some tax on this $ to both the US Federal government, and the Canadian taxing authority, just as you might pay tax to the US Federal government and to whatever state you live in.

I have included the instructions for Form 1116 (Foreign tax credit) since there are details about your tax return that I have no way of knowing (such as did you itemize deductions, etc.)

Instructions for Form 1116 (2008)

I hope this helps

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