Reporting Canadian RRSP Withdrawl on US Taxes

[NM1]

The reporting requirements for RRSPs were changed greatly for the better about ten years ago, but I'm not sure where you got the idea that the FBAR no longer applied. (Note: technically the new online Treasury form is a "FinCen Form 114", but it is still referred to as an FBAR, even on the form itself.) The 8938 replaced the former 8891 but was not well advertised. I got caught on that one myself not long after and had to send in a couple of years' amendments (which, for me, did not change any numbers, it was just a missing form). If you use TT it prompts you for foreign account information and will generate the 8938 if it's required. The FBAR, of course, is done separately because it's not an IRS form; it is now only online.

There are ways to get yourself back on track, such as FBAR amnesty forms. For a thorough review of the background, as well as information on moving forward, I suggest you start with this article by a tax lawyer who specializes in cross-border issues (https://hodgen.com/rrsps-and-the-irs/ , updated in 2023), and possibly also consult a tax/accounting expert familiar with this area for verification. I would have suggested you contact the IRS, but a) it's a terrible time of year to do that; and b) it will be nearly impossible to get hold of anyone who has the first clue about handling RRSP reporting. Those amended filings I mentioned above ended up in different IRS offices. One handled it correctly - i.e. simply acknowledge receipt of the additional form - but the other was so confused I had to use the letter from the first one and explain the situation to get the second one unstuck. (Once upon a time I had a really excellent phone conversation with the IRS attorney who worked on improving the RRSP rules, but sadly, I see he died several years ago.)

This is not a fatal situation, but you really should not ignore it.

[DaveF1006]

It depends. Here are the instructions for filling out Form 8938. For the foreign pension, it is reported as an "other foreign asset" in Parts II and VI of Form 8938. For part 2: 

• Line 10 Report the number of accounts and assets reported in all Parts VI
• Line 11 Report the total maximum value of these accounts and assets.
• Line 12 Indicate whether any account was opened or closed or any asset was acquired or disposed of during the tax year.

For Part V1, please go to page 14 in the instructions to refer to how to report this pension as this is very detailed.

@jptbt8  

[daleg]

I have reported foreign tax credits for a 1099-DIV and cannot add another foreign tax credit for my RRSP. I don't see the screen with "Tell Us About Your Foreign Taxes". How do I get that screen to come back?

[DaveF1006]

Go back to and visit your foreign tax  credit.

1. Go to Federal
2. Deductions and credits 
3. Estimate and other taxes paid 
4. Foreign Tax Credit>start or revisit
5. Scroll through the program until you get to a screen that says Foreign Tax credit Summary. See screenshot 1.
6. Here you will select add a foreign tax.
7. Next screen will ask you to pick an income type. Pick passive income.
8. Next screen will ask if you wish to pick another income type, say you will want to keep it on the same copy as the dividend copy.
9. Next question will ask you to pick a country under Country Summary.  See screenshot 2. Here you will select add a country and choose Canada if it is different from the country your dividends were issued from.
10. Finish out the section regarding reporting the Gross amount of income from the pension and then the foreign taxes that you paid to Canada from the pension.  
11. Finish out the section.

Here are the two screens that you need to be especially mindful of when you are completing this section that i mentioned above.

[ywso]

Thank you for the question and answer. @MarilynG1 @bcselin 

What about the cost basis of the distribution?

The distribution contains: the initial contribution (cost basis) + gain

As far as the IRS's concern:

  Is the entire distribution taxable? or

  only the gain portion is taxable?

What about the state government? e.g. is California only taxing the gain portion, or the entire distribution?

Thank you 

[NM1]

An RRSP is a tax-deferred account, so cost basis is irrelevant (in both Canada and the U.S.). 100% of the withdrawal is treated as ordinary income, basically like withdrawals from a traditional IRA in the U.S.

If you are a resident of the U.S., your RRSP manager will automatically deduct 25% non-resident withholding tax to remit to the Canadian government, before transferring the remainder to the bank account you provide for that. Just like in the U.S., where your total income is added up before taxes are calculated, you have to report the full amount of the withdrawal, converted to U.S. Dollars, to the IRS on your tax return. (I use the exchange rate that the bank applied to the net amount on the date I received it.) Then use TurboTax to calculate the foreign tax credit you can apply against the U.S. tax due on the full amount of the RRSP withdrawal. The credit will be prorated based on the percentage of your total reported income that was from non-U.S. sources. Chances are you won't get a credit for all of the Canadian tax, since U.S. tax brackets cover a lot of income before they reach 25% (and that's a marginal tax rate, not flat like the Canadian withholding). In principle you can carry leftover credit forward to apply to future foreign income in the same category on Form 1116, but in practice you probably won't have a chance to use it due to the permanent tax rate disparity.

Note that Canadian federal tax payments can only be credited toward U.S. federal tax. You'll have no credit against state tax unless you had provincial tax withheld from the withdrawal as well. As a non-resident, this would be very unusual. Not all states permit this, so if that is the case for you, you'll need to check on it. California in particular is notorious for being different (e.g. they don't allow deductions for HSA contributions).