How do you make TurboTax understand that Social Security and Canada Pension Plan benefits paid to Canadian residents aren't taxed by the U.S.?

[WT6]

The "best" answer so far is to take a tax credit, which is cumbersome and misses the point. The U.S. does not tax these benefits, period, regardless of how much foreign tax is paid. A Canadian residence should be sufficient for TurboTax to consider the payments non-taxable on a U.S. return. Is there any place in TurboTax to specify the non-taxable portion (in this case 100%), as is done for RRSPs?

[Vanessa A]

Are you a US Citizen?  Why are you filing a US return?

[WT6]

Yes, I'm a U.S. citizen living in Canada.  According to IRS Pub 915 pg. 6, any Social Security benefits should be reported on line 6a of Form 1040, and the taxable amount should be reported on line 6b.  It also says that taxpayers residing in Canada do not pay U.S. tax on Social Security benefits.  TurboTax doesn't have an interview question about this, and it calculates the taxable amount as it would for a U.S. resident.  The only option I can see is to override the calculated amout on line 6b, but that obviously takes away the ability to e-file.

[Vanessa A]

You are correct, the only way to report your SSA benefits on line 6a and have $0 reported for line 6b would be to override line 6b and then print and mail your return. 

[VolvoGirl]

Wouldn't you just not enter it at all in the first place?   You didn't get a SSA-1099 form for it, did you?  It's not USA Social Security.   

[WT6]

Okay, but shouldn't that be fixed?  How would someone file a bug fix request with TurboTax? It seems like not handling a valid tax situation without requiring an override is something that should be improved.

[WT6]

@VolvoGirlI will be getting an SSA1099, and since I have a good idea of what will be on it, I wanted to start getting an idea about what my taxes will look like this year.   In addition, American citizens living in Canada are required to report their Canada Pension Plan amounts in the same way they report Social Security benefits. While it's true that not reporting it at all would have the same end result as reporting it and zeroing out Form 1040 line 6b, the IRS instructions do say that I'm supposed to report it.  I have no idea if not reporting it would lead to any trouble down the road. And yes, I've called the IRS and the people answering the phone had no clue. They actually said to talk to a tax attorney.

[Anna803]

You don't.  This is something covered under the US-Canada Tax Treaty and TurboTax does not support Tax Treaty claims or the required Tax Treaty Form 8833.   The instructions in Pub 915 are the general instructions but they don't address all of the nuances including when you may need to file Form 8833.

If you want to use TurboTax online your best bet is don't report it and then if you get a notice from the IRS asking why, reply explaining that you are a Canadian resident and return Form 8833 with your reply.

If you want to file using TurboTax Desktop, override the taxable portion of social security, complete Form 8833 on your own, and print your return and mail it with the form attached. 

[WT6]

@Anna803I went down that path, but if you read the instructions for Form 8833, it explicitly says that reporting with a Form 8833 is waived for treaty positions involving annuities, pensions and Social Security. So filing that form would only confuse the matter.  It seems like the real solution is for TurboTax to allow the filer to enter a taxable amount, with a warning that the situations that require this are rare, and a reference to Pub 915.

[rjs · Accepted solution]

The Help for the Social Security Benefits Worksheet in the CD/Download TurboTax software says if you are a U.S. citizen residing in Canada, do not enter the amount from box 5 of your SSA-1099. It doesn't say anything about needing Form 8833. Apparently they think it's okay to just omit the income, and not show it on line 6a.

I don't think that omitting it would cause any trouble. The IRS knows it's not taxable. They don't go after people when they can see that they are not going to be able to collect any additional tax.

[WT6]

@rjsThanks, I didn't see that. Are you getting that help from the Step-by-Step mode or the Forms mode?  I can't find it.  But yes, I agree. As swamped as the IRS is these days, the odds of them going after someone for an issue that makes no difference in the outcome are probably small.  I just don't want anything to cause my return to get flagged.  An unnecessary Form 8833, for example, might trigger some unwarranted scrutiny.

[rjs]

The help is in forms mode. The tag on your question says you are using TurboTax Online. If so, you don't have forms mode.

If you are using the CD/Download TurboTax software, go to forms mode and open the Social Security Benefits Worksheet. Then click Help Center on the menu bar at the very top, on the right. The instructions that I referred to are under the Line A heading.

[WT6]

Thanks!  No, I'm using the download version.  I can see it now.  So apparently that's their solution to the problem. I guess I'll try it and hope for the best.  Thanks for your help!

[T Elrod]

    There is an important downside for expat Americans failing to report US Social Security -- it leads to overstatement of our tax credits.

    For American expats living in Canada, for example, the two major means for reducing double taxation of passive income on their US tax return are (1) the tax treaty, and (2) tax credits. It's usually best to use (1) first, reserving (2) for income that is taxable in the US.

    For example, if 2/3 of your income is not taxable in the US because of the tax treaty and 1/3 is, then you'd apply your tax credits to the 1/3 portion. However, only about 1/3 of your taxes paid in Canada could be applied to the 1/3 of your income taxable in the US. This is fair and makes sense, and it explains why the IRS asks for the actual income amounts as well as the amounts that are taxable in the US. If you only report income that is taxable in the US, then all of your passive income taxes paid in Canada would be applicable to the 1/3 of your income taxable in the US. Clearly, the IRS doesn't want people doing this because it results (intentionally or not) in an illegitimate reduction of their US tax.

    That said, TurboTax does not allow us to enter taxable income (which is zero) on the Social Security worksheet, even though the spot for it is on the form! Given the chance, we would use the 1040 worksheet ( Schedule 1, line 24z) to report the amount not taxable, which is copied to line 6 of the 1099 Social Security worksheet. But TurboTax won't let us enter the amount not taxable in either location. Yes, LET'S HOPE THIS IS FIXED.

    I hope this helps explain why we hope TurboTax will let us deal with this issue properly. Do keep in mind, though, that I am not a tax accountant but merely an expat tax payer in the same boat you are.

    May you and yours be well.  Terry

[WT6]

Hi Terry,

That's a very good point.  Basically TurboTax is telling us to do something that could potentially screw up our Form 1116 calculations.  They really need to address this, but trying to get their attention is like barking into a black hole.  Until then, I'm going to use the override, and investigate the IRS's free fillable forms option as a way to ditch TurboTax entirely.  Their aren't enough customers in our situation for them to care about this.