Reporting Canadian RRSP Withdrawl on US Taxes

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.

MarilynG1

Thank you for the response and answering my question.

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

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

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

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 

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

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 

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.

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

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 

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: 

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: 

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

Body:

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. 

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 

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

Please clarify

Passive income is earnings from dividends, interest, royalties, rents, annuities, etc., in which the taxpayer is not actively involved.

A pension is not passive income. See Topic No. 425 Passive Activities – Losses and Credits - IRS.

Let me provide all the steps necessary to enter a foreign pension and credit for tax paid.

To enter your foreign pension in TurboTax online program, you will need to create a substitute form 1099-R.

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “1099-R”
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you receive any 1099R forms?"
5. Scroll down and select "I'll type it in myself"
6. Select "I need to prepare a substitute 1099-R" and follow the prompts

As to the Federal ID, if your foreign issuer does not have the ID number, try entering ones.

Since you also paid Foreign Tax on that income, please see the following steps from @TurboTaxKarenJ:

To report the foreign tax paid on your pension for foreign tax credit:

1. Enter foreign tax credit in the search box at the top of the page and click the Jump to link
2. Click 'Yes" you paid foreign taxes
3. Click through the screens regarding foreign interest and dividends
4. Click yes that you have reported all your foreign income already in TurboTax
5. Click that you want to take a credit
6. Answer question about the Simplified Limitation Election
7. Choose income type for pension - it will be General category income
8. Add the name of  your county
9. Enter description -XXX pension
10. Enter Pension Income amount that you previously reported in another section of TurboTax (1099-R substitute)
11. Enter your taxes you paid on your foreign pension in the box "Other income"
12. Continue through the foreign tax credit screens until done.

I am genuinely grateful to see such strong participation from Intuit employees to help clients with a complex subject. Thank you for that. Unfortunately the experts here, along with others on similar TT Community Q&A threads, differ in ways that affect how the reporting should be done: gross income vs net of taxes; passive vs general income on the 1116; 1099-R substitute or not; etc. Would it be possible to reach a consensus so there isn't a wide variety of methods in what the IRS receives, as well as reducing client exposure to errors the IRS would catch?

Note that the TurboTax "interview" process has a line for Canadian plans under the Retirement section of Wages & Income. Therefore, I reported my RRSP income this way (gross amount because it is all taxable, converted to USD using the exchange rate that was applied to the net amount I actually received). Then I let TT handle it. The income appeared on line 5a of the 1040, as expected; if it hadn't, TT - and perhaps the IRS - would get hung up on the lack of a valid TIN, which few foreign payors have. ("Try entering ones" seems a bit dodgy since it isn't true, which makes the final 1040 signature declaration perjurious.) After that, I followed the instructions for doing the 1116. For whatever it's worth, most cross-border accountants who have posted on the subject say to categorize it as Passive Income, but a few do say General Income instead.

Re IRS Topic 425, linked above: it seems to pertain to rental and real estate activities, so I'm not clear on its applicability here. I would like to note, though, that many RRSP/RRIF holders living in the U.S. cannot make any modifications to their investments due to SEC broker-licensing restrictions. Some waivers have been granted but they don't cover everyone. For those of us affected this way, the only "active and material participation" consists of initiating a withdrawal - and even that isn't an active choice with a RRIF.

I am so confused.

@Cutesy  Can you please clarify your situation or help needed?

Reading through this thread is confusing to me.  The last person's message about being consistent on the solution went unanswered.  Perhaps I should just go with the "best answer" vote?

My situation is the same.  2023 is the first year I withdrew from my RRSP.

The program has a section for Canadian retirement plans, you can just follow these steps. It is just a few steps and you can always check back with any further questions.

I see the best answer leads to another best answer with another option. Your best option for an RRSP withdrawal is to report the full amount as taxable income and report the tax paid all on the same form. This way when the governments are sharing information, items will match up. 

Hi.  Appreciate the advice of engineering a 1099-R. The tax withheld at 30% offset the additional income.  My only concern was that it said I may have an early withdrawal penalty of 15%.   I know US plans have early withdrawal penalty.  Any idea why this warning was triggered ?   The penalty was not imposed on my federal return. 

This warning was for informational purposes only alerting you to the fact that you may have an early withdrawal penalty. If the penalty was not imposed, then you can ignore this warning.

Thanks a lot for all the answers by experts!

However I am still very confused as there seem a number of answers to me, and hard to follow which one.

I withdrew all my RRSP money in 2023, e.g. total balance is $100K, Canada took $25K as tax, i.e. I got $75K.

Is below the complete procedure at TurboTax to deal with the tax on US?

1). Under "Wages & Income", enter $100K as "Total Distribution", and $75K as "Taxable part of Distribution"

2). Under "Deduction & Credits", follow below steps to claim the $25K as foreign tax credit:

"

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"

i.s. I need to do both 1) and 2) ?

Thanks!

Almost perfect. You were given two methods of reporting and combined them so instead we need to pick one best method. 

1. Report the income:  

• $100,000 is reported as income on line 5a. 
• Line 5b is taxable income to Canada converted to USD. If the entire $100,000 is on your Canada return, it must be the equivalent on your US return.  See page 27,  line 5 distributions in Instructions for Form 1040  to see if the entire 100,000 is taxable  in the US. I expect it to be the equivalent of the taxable amount to Canada. 

2. Report the foreign tax paid for credit against the taxes due. Your steps look good.

Since you paid $25,000 tax for a $100,000 distribution, I would suspect the  $100,000 is the taxable amount otherwise you would have said, I withdrew $100,000 and had $25,000 tax withheld for the $75,000 Canada taxable portion.

Reference:

Canada - Tax Treaty Documents

@jptbt8