Withdrew from Canada RRIF - reporting NR4 (code 26) on US taxes

[GPRP]

I am a dual US - Cdn citizen living in the US who is retired. I withdrew from a RRIF for the first time in 2023 and this was my sole income.  I received a lump sum of $135,000 CDN with 25% withholding of $33,750 CDN.  NR4 has code 26.   Do I create a 1099R?  Will my gross and taxable amount be the same, converted in US $ or is my taxable amount less withholding taxes?  I was anticipating a refund, but my calculations  show I owe close to $7K.  What am I doing wrong?  Married filing jointly.

[DaveF1006]

It depends on what the exchange rate was in 2023. I have researched historical rates for 2023 and the average is around .72. Let's calculate. 

1. Income                       $135,000 X  .72 = $97200 
2. Standard Deduction                                 27,700
3. Taxable Income                                       $69,500
4. Tax liability                                                $7,903  This is approximate but could vary depending on the exchange rate

Now since you paid the withholding to Canada, you will need to claim a foreign tax credit for the taxes you paid to Canada. 

To report the income, go to:  

1. Log into your account
2. Select Wages and income
3. Less Common income
4. Miscellaneous Income, 1099-A, 1099>start
5. Scroll to the bottom of the page to Other Reportable Income
6. Other taxable income, answer yes
7. Then give a brief description of the income and the amount listed. Here list this as RRIF income and the amount.

As far as the Foreign Tax Credit, i don't have enough space in this post to go through the complete steps but I will get you started.  You can reply back if you need additional help in completing this section.

1. Go to Federal
2. Deductions and credits
3. Estimate and other taxes paid
4. Foreign Tax Credit>start or revisit
5. When it asks We just need to check if you have any uncommon situations indicate I paid foreign taxes on income I earned while working in another country. 
6. At some point in the interview, it will ask if you wish to take a deduction or a credit.  You will wish to take the credit as this should erase your entire tax liability unless there is other income items to report in your return.
7. Foreign Taxes paid should be $33,750 X .72= $24,300.  This is approximate but could vary according to the exchange rate you use.

[GPRP]

Thank you for your reply. Is there a reason to use 1099-A rather than plugging it in as a 1099-R?

[DaveF1006]

You aren't reporting this as 1099A income. You are reporting this as other income precisely in the manner I prescribed . You can enter this on a 1099 R but unless you have specific details about the issuer of the RRIF such as the EIN, it's best not to report on the 1099R because if it isn't reported correctly, you won't be able to efile your return.

IRS is not concerned so much how this is reported. It is only concerned that you report the income.

[nyrie]

I have a similar question - except my withdrawal is periodic payments and 15 % non-resident tax has been withheld ..this is for 2024..thanks 

[DaveF1006]

Yes, Here is the best method to report the pension and claim the foreign tax credit.

1. Log in or open Turbo Tax.
2. Go to federal
3. Income and expenses
4. retirement plans and social security>show more (if using Turbo Tax online)
5. Go to Canadian Registered pension and report it. You will report the total amount of income you received in your pension in 2024.

To claim the Foreign Tax Credit.

1. Log in or open Turbo Tax
2. Go to federal or federal income
3. Deductions and credits
4. estimates and other taxes paid>show more (if using turbo tax online).
5. Select Foreign Tax Credit or Foreign Taxes (if using the software)
6. Answer the questions. Be sure when you get to the area where it says Gross income, list the full amount of the pension here or else you won't receive the credit. Many people make this mistake.
7. Also when the program asks for the category of income, indicate this is passive income
8. Sometimes this section gets a little confusing so if do have questions regarding navigation, just reach out to us. We are here to help.

@nyrie 

[bonsuds]

I am able to get to the part in the foreign tax section online but there is no where to select gross income, or indicate it is passive. I seem stuck between the itemize deductions or tax the credit. If I take the credit it back out to the main menu on the deductions and credit screen. If I go to itemize it lists the taxes I've already paid on the main screen but doesn't adjust my balance owing. Whatever I am doing it is not allowing me to take the FTC. 

[MarilynG1]

In the Foreign Tax Credit section, TurboTax asks if you had any other Foreign Income, besides what has been reported in the 1099-INT/DIV section.

You're then asked for Type of Income (Passive), Continue and you'll be asked to enter a Country,  Amount of Income, Amount of Tax, Date Paid.  Keep going; there's alot of questions in this section, including expenses, adjustments, carryovers, that don't apply to you. At the end you'll see a Foreign Tax Credit Summary page.

Even though the refund meter at the top may not show a difference, you should see an amount on the main screen for Deductions & Credits next to Foreign Tax Credit. You'll see the credit on Schedule 3, Line 1. 

If you're using TurboTax Online, close the program, clear your Cache and Cookies and return to Deductions & Credits. 

Here's more info on Claiming the Foreign Tax Credit.

@bonsuds 

[bonsuds]

This is helpful, for my specific situation it is for a Canada form NR 4 code 27 which is a lump sum payment on a RRIF. Should I be posting it under income as a 1099-R or as a Canadian Registered Pension income? Thank you.

[DaveF1006]

You should report this as a Canadian Registered Pension.