Reporting Canadian RRSP Withdrawl on US Taxes

[bcselin]

I am a US citizen and last year I had a withdraw from my Canadian RRSP.  When I go to enter it under Wages and income I am not sure what the difference is between Total Distribution and Taxable Part of Distribution.  For an example if my total withdraw was $10000 and the Canadian government withheld $2500 (25%).  What would I enter in turbotax for each of the distribution entries?   

Also should I also be filling for a foreign tax credit on my taxes this year?

Any help will be greatly appreciated in understanding this tax entry.

[MarilynG1 · Accepted solution]

Enter your Total Distribution as $10,000 and the Taxable Distribution as $7,500. 

You are not required to claim the Foreign Tax Credit, but you may want to if it is beneficial to do so.

Click this link for detailed instructions on Entering your Canadian RRSP and Claiming the Foreign Tax Credit.

[bcselin]

MarilynG1

Thank you for the response and answering my question.

[bntax_2023]

I have been filing credit for foreign tax credit.  From this answer can I change my method and just claim the net after tax distribution as taxable this year ?

Also on the same subject I input my wife Canadian RRSP withdraw in 1099R and it would not transfer to 1040 line 5a for tax year 2022

[HopeS]

For foreign taxes paid, you can choose to take the amount of any qualified foreign taxes paid during the year as a credit or as a deduction. To choose the deduction, you must itemize deductions on Schedule A (Form 1040). You must choose either the foreign tax credit or itemized deduction for all foreign taxes paid or accrued during the year. This is an annual choice.

Please follow these steps to enter the RRSP. 

To enter Canadian RRSP information, go to:

• Across the top, select the tab Federal taxes / Wages & Income 
• Scroll down to Retirement Plans and Social Security / Canadian Registered Pension Income, select Start

While going through the interview you will see the screenshot below, revisit your entry to see if you had entered anything in the taxable distribution section.

Also, see the link below:

Canadian RRSP

@bntax_2023

[bntax_2023]

Thank You HopeS, this is different from the response of MarilynG1 on Feb 4.  She suggested that just report the taxable portion of Canadian RRSP distribution as the net received (after Canadian 25% tax) on 1040 line 5b.  In other words, just deduct the Canadian tax right off .  Please clarify

In the second part of your response, do I have to put anything on the  box "Taxable part of Distribution"

Thank You very much

[MarilynG1]

Yes, you will enter an amount in both boxes.  Enter Gross Distribution, then Taxable Portion (Gross minus Tax paid).  

Then, claim the Foreign Tax Credit for the amount of Canadian Tax you paid. Here's the steps:

• At the right upper corner, in the search box, type in "foreign tax credit" and Enter
• Select Jump to foreign tax credit
• Follow prompts
• On screen, "Tell Us About Your Foreign Taxes", do not check the first box. 
• (First box says -you have no more foreign taxes to enter other than the 1099-DIV, 1099-INT, 1099-OID or a Schedule K-1)". 
• Follow prompts
• Choose the Income Type, select "Passive Income"
• On screen, "Country Summary", add Canada
• On screen, "Other Gross Income", enter Canada RRSP and the Gross Distribution amount 
• On screen, "Foreign Taxes Paid", under foreign taxes on Other Income, enter the amount of Canadian tax you paid

@bntax_2023 

[bntax_2023]

After the input of RRSP gross distribution and taxable distribution as the net (after deducting 25% Canadian tax) Can I still file form 1116 to get the foreign tax credit I paid to Canada ?

Thank You Marilyn

[DianeW777]

The taxable amount of your distribution should not be reduced by the tax payment to Canada.  The full taxable amount is required to be included in your US income. Once you have completed that, then you do take the foreign tax credit using the instructions provided by @MarilynG1.  They are provided here again for your convenience

Foreign Tax Credit for the amount of Canadian Tax you paid. Here's the steps:

1. Search (upper right), type in "foreign tax credit" and Enter
2. Select Jump to foreign tax credit
3. Follow prompts
4. On screen, "Tell Us About Your Foreign Taxes", do not check the first box. 
5. (First box says -you have no more foreign taxes to enter other than the 1099-DIV, 1099-INT, 1099-OID or a Schedule K-1)". 
6. Follow prompts
7. Choose the Income Type, select "Passive Income"
8. On screen, "Country Summary", add Canada
9. On screen, "Other Gross Income", enter Canada RRSP and the Gross Distribution amount 
10. On screen, "Foreign Taxes Paid", under foreign taxes on Other Income, enter the amount of Canadian tax you paid

@bntax_2023 

[NM1]

What @DianeW777 said.

If you follow the original suggestion of subtracting the Canadian tax paid to come up with the "taxable amount", you are leaving taxable income out and circumventing the proper calculation of proportional taxation. If you then also complete a Form 1116 to get a Foreign Tax Credit, you are effectively doing both a deduction and a credit. I suspect the IRS would frown on that.

Thanks to the tax treaty between the U.S. and Canada, a Canadian RRSP distribution is treated pretty much exactly like a distribution from a tax-deferred U.S. IRA would be - i.e. all of it counts toward taxable income (barring uncommon steps such as QCDs, which may or may not be permitted with foreign retirement income anyway). Moreover, when a foreign tax credit is claimed, that credit may only be applied against the tax that would have been due to the IRS on the amount of that particular foreign portion of your total income. Since Canada does a flat 25% withholding on RRSP distributions to non-residents, in most cases this will be higher than the applicable U.S. marginal tax rate, meaning that the credit from the IRS would be less than the amount withheld by Canada. So you can't simply take the total Canadian tax paid off the top when reporting it to the IRS. Note that the unused amount of the foreign tax paid will be available as a credit carryover, but you'll probably encounter the same situation next time, too.

[gschmutz]

I am trying to follow the instructions for claiming a foreign tax credit from an RRSP withdrawal. However, when I jump to foreign tax credit, I do not get to a screen that says, "Tell us about your Foreign Taxes,' I get screens that are titled Foreign Tax Credit => Foreign Taxes => Do you want the deduction or credit = > Reporting Foreign Taxes Paid => Where did you receive Dividend Income from?

So, Tubotax wants to associate foreign taxes with a Form 1099-Div which I do not have from Canada. I don't receive an option to input the taxes I paid on the RRSP distribution. 

I have looked through mu 1099-Div inputs and do not see anything there that reports foreign income.

Any help is appreciated

[DianeW777]

Once the income is reported on your United States (US) return follow the instructions below to take the foreign tax credit.

Foreign Tax Credit for the amount of Canadian Tax you paid. Here's the steps:

1. Search (upper right), type in 'foreign tax credit' and Enter >  Select Jump to foreign tax credit
2. Follow prompts > On screen, 'Tell Us About Your Foreign Taxes', do not check the first box. 
   1. First box says -you have no more foreign taxes to enter other than the 1099-DIV, 1099-INT, 1099-OID or a Schedule K-1'. 
3. Follow the screen prompts
4. Choose the Income Type, select 'Passive Income'
5. Select Canada on the 'Country Summary screen
6. For the  'Other Gross Income, enter Canada RRSP and the Gross Distribution amount 
7. For the 'Foreign Taxes Paid, under foreign taxes on Other Income, enter the amount of Canadian tax you paid

This will reflect the foreign tax credit on your tax return.

@gschmutz 

[gschmutz]

thank you for your response.

I do not get a screen that says "Tell us about your Foreign Taxes", I do not get a first box to check.

first screen: Title: Foreign Tax Credit.

Body: 

Since you earned money in another country, this credit could reduce your taxes here in the states.

You told us you paid foreign taxes on a 1099-DIV, 1099-INT, 1099-OID, or K-1. Now we'll see if you qualify for the foreign tax credit.

next screen: Title: Foreign Taxes

Body:

You need to complete Form 1116 if you want to claim the foreign tax credit.

A separate Form 1116 must be used for each category of foreign income for which you paid taxes.

Must you take the foreign tax credit? Not necessarily. We'll give you another option next.

next screen: Title: Do you want the deduction or Credit?

Body:

You can claim your foreign taxes as an itemized deduction, or you can take a credit for foreign taxes paid. We can help you decide which option is better for your situation.

choose Take a Credit

next Screen: Title: Reporting Foreign Taxes Paid

Body: 

We'll begin with foreign taxes paid on income reported on Form 1099-INT (interest), 1099-DIV (dividends), 1099-OID (original issue discount), or Schedule K-1 (partnerships, S corporations, estates and trusts). If you paid foreign taxes on multiple sources of foreign income, please see these special instructions.

Next Screen: Title : Where did you receive Dividend Income From?

Body:

Select all countries to which you paid foreign tax on dividends reported on Form 1099-DIV. Learn More

Note: Select RIC for any income received from a mutual fund or other Regulated Investment Company.

Country

This is nt the sequence that you describe. If I enter Canada here, it wants to associate the country with 1099-Div, Int,  OID or K-1 - It does not give me an opportunity to enter the foreign taxes paid.

Thank you for the help. 

[MarilynG1]

That is correct, this part of the interview is asking about Foreign Tax you already reported on a 1099-Div, etc. 

Continue through the interview until you come to a screen asking if you have other Foreign Income to report and choose General Category Income.

Then choose 'Add a Country' (you may have RIC already showing) and add Canada.

The enter description and gross amount of your Canadian Pension.

Continue until you come to a screen where you can enter the amount of Canadian Tax you paid.

@gschmutz 

[bntax_2023]

Previous instruction shows that this should be reported on "Passive Income" Category.

Please clarify