Foreign Income

[BillV]

I have client who worked in Canada for about two months. Lived in hotels. His tax home is in Texas. He received a T4R-NR with Income Tax deducted. How and where to we report this income. Is this income subject to SE?

[Burke]

It is reported on his US tax return as whatever it was, wages - self-employment, etc. You will have to convert CAD to USD. The tax withheld was probably Canadian dollars, and if you want that back, you have to file in Canada for it within a specified time. After that, no go. You might be able to file Form 1116 for foreign tax paid on the US return.

[Koss]

Canadian Earnings

While I don't disagree with what Burke said, there may be a bit more to it...

It certainly has to be reported on his US tax return. US citizens are taxed on their worldwide income. Whether it is also subject to Canadian federal income tax is a different question. Likewise, the question of whether your client should, or must, file a Canadian return is something that will be determined by Canadian tax law. I'm not entirely convinced he can get a full refund of whatever was withheld.

Your original post asked whether it is subject to self-employment tax. If the earnings in Canada were wages, the answer is no. Canada has something called social insurance that is almost identical to social security in the USA. In fact, it's so close, there's a reciprocal agreement between the two countries. People that live in border states like Michigan and New York may spend their entire lives migrating between the two countries. Or maybe someone is a US citizen, who lived and worked in the US his entire life, except for this one special project that had him working and living in Canada for an entire year. It doesn't matter. The concept is that the two countries work out reciprocal old age retirement benefits when the guy finally retires. You can't double dip, i.e., you won't get a retirement check from both countries. But for a US citizen who retires here in the US, in the Social Security system, the contributions to the Canadian system are not lost. And vice versa for a Canadian who has contributed to the US FICA system while working here...

You may want to take a look at Pub. 597...

BMK

[JG EA]

Also, if the form is NR and withholding has been taken out, I just learned that it is a tax, and you can put it on 1116. Canada is satisfied when the correct percentage is taken out on NR forms. And as it was brought out it may or may not benefit you to file in Canada. Who would want to? Their returns are so foreign.

[Koss]

Social Insurance

What I was trying to say, but did not express very well, is that if a US citizen earns wages in Canada and pays into the Canadian social insurance system through withholding, they will get credit for those earnings in the US social security system...

if the social security system still exists when they retire.

Or, for that matter, if the United States still exists when they retire.



BMK

[Burke]

You are correct. I do a US citizen every year (US tax return) who lives and works in Canada and pays all the Canadian Social Security taxes. But that one is eligible for Foreign Income Exclusion here.. They get a regular T-4. The T-4 NR is treated somewhat differently. That one -- another client -- is self employment paid to an independent contractor in my case.