Reporting Social Securiity Tax Exempt Under Treaty

[BobinToronto]

I am a US and Canadian citizen living in Canada. Under Tax Treaty my Social Security is taxed in Canada and exempt in US.

On my US return I can enter my benefit but I cannot figure out how to make it exempt.

[PaulaM · Accepted solution]

Report the income in the social security section of your tax return (to satisfy the IRS), then make an adjustment on the line 21 of the 1040. Select Less Common Income, Miscellaneous Income, Other Reportable Income. Enter a description, then a negative number. From the IRS link below.

Claiming Tax Treaty Benefits | Internal Revenue Service

If a tax treaty between the United States and your country provides an exemption from, or a reduced rate of, withholding for certain items of income, you should notify the payor of the income (the withholding agent) of your foreign status to claim the benefits of the treaty. In addition, you should complete Form 8833 Treaty-Based Return Disclosure, and attach it to your 1040.

Claiming Tax Treaty Benefits

Form 8833

[CF]

This proposed solution does not work for the 2018 tax year (tax returns due in 2019).  It interferes with the calculation of taxable social security benefits and consequently, the amount displayed on Form 1040 Line 5b.  Turbo Tax should provide (on the Social Security Income input screen) a 'tick box' for people with Social Security income that is exempted under Article 17 of a Tax Treaty.

I have resorted to reporting both the income and the exempted amount on line 21 of Schedule 1  like this:  US Social Security: $1,234 and US Social Security exempt from tax per US/UK Tax Treaty Art 17, Part 3: $-1,234.

[thalsell]

how does this actually work.   If you put in 100% of the SS income in other you get a negative deduction above and beyond the taxable amount of 85% if you are maxed. I am in between the 0 taxable and 85%.  It is a round robin calculation so you are definitely wrong on this answer.

Correct is put it on misc income (SSA-1099 income)

as a positive and Misc income as a negative (Exempt Canadian Treaty see Form 8883)

[Segerman]

Unfortunately the 1040 form changed in 2018 and 20a is not social security benefits. Line 21 on the 1040 does not appear to be the correct place to put a negative number.  I went to form 1040 line 5 social security worksheet and overrode the taxable social security benefits and wrote in”exempt.” I probably got the correct amount of tax by doing this. Shall I submit the worksheet or is there another place I should write “exempt?”

[thalsell]

Document the income line SSA-1099 SS income and the deduction line Exempt SS Income  - Canadian Treaty.

You are right as the calculation in the original line items and putting in the income in SS and the deduction in Other deductions would reduce taxable income by 15% - 100% of the SS income depending on taxable SS income. 

[thalsell]

You need to modify the response as your solution will produce a 15% or 100% reduction in AGI when it should have zero affect. Tested this several times.

SS is taxed based on Income level with say $34,000 being exempt. $0 to 85% of the SS income is taxed so if the Income is taxed 85% and you put in other Deductions (TTO must be in Other Income as a negative) you get a 15% deduction ($24,000 SS income is taxed up to $20,400) If you put $24,000 as negative income you get a $3,600 reduction in AGI.  If you put in $20,400 it still produces a difference.  There is a circular computation.

So the best solution is to put Misc Income line   SS income  - SSA-10999 $24,000 and a negative Misc income line  Exempt SS income  - see F883 $-24,000.  

This will report the income and exemption and has no affect on any other calculations.  This is the best solution until TT changes the input.

[alanstein]

I've been able to simply change the taxable amount to 0 on a worksheet. The catch is that the IRS wants you to fill out Form 8833 if you use a treaty based position and TurboTax Deluxe doesn't include that form, so it seems as if you need to file by mail rather than electronically if you use the exemption from taxation on Social Security. Do any of the TurboTax versions include Form 8833?

[Critter]

None do. 

[CFry]

Note that Regulation §1.301.6114-1(c)(1)(iv) exempts the requirement to file Form 8833 for treaty based return positions related to the reporting of SOCIAL SECURITY income on which the income tax has been reduced or modified under the treaty.

[alanstein]

That's great to know; it's the most useful information I've seen about this.