I am a U.S. citizen living in the U.S.. In 2017, I performed some W-2 work in Canada for which I was paid, and the income was included on my U.S. W-2, but Canadian withholding taxes of $2,000 CDN ($1,500 USD) were taken out of my pay.
I claimed a $2,000 USD (my mistake for not converting CDN to USD, see below) foreign tax credit on my 2017 U.S. 1040 return, and did not file a Canadian tax return. About 6 months ago, Canada contacted me to file a 2017 Canadian return, which I did, and I then received a full $2,000 CDN refund, plus some refund interest.
A similar situation occurred in 2018, the sole difference being that on my 2017 U.S. return, I would have owed a small amount of additional tax on my U.S. return if I had not claimed a foreign tax credit. In 2018, I would have received a small U.S. refund, even without the foreign tax credit being claimed.
My questions are as follows:
- In claiming a foreign tax credit on both my 2017 and 2018 U.S. 1040, I mistakenly used the $2,000 CDN instead of converting It to $1,500 USD for purposes of the credit. Should I file a 1040-X amended return to reflect the corrected $1,500 USD credit and pay the $500 USD credit overstatement with the 1040-X?
- Because the Canadian refund I just received (plus the correction of the CND to USD above), reduces my correct foreign tax credit for each year to zero, should I file a 1040-X amended return reflecting the correct zero credit, plus also send the IRS the full amount of the Canadian refunds sent to me?
- Finally, does it matter whether I would have originally been entitled to a refund or owed additional tax without taking into account the foreign tax credit?
