So this is the situation: after consulting with the Canadian Revenue Agency (similar to the IRS but Canadian), they said that I am being CORRECTLY taxed by them (I work remotely for a Canadian company but live in the U.S.). They said that according to their rules, tax treaty, etc., I need to pay them taxes because the Canadian company is located within Canada, etc., etc., etc. I have already filed taxes in Canada and this employment income was reported and even more taxes paid on it to Canada.
Now at the time of filing my US taxes, since I have already paid the Canadian government even a higher tax rate that I would owe in the U.S. and because Canada/USA have a tax treaty to avoid double taxation on the same income, how would I go about claiming this income and the tax credit?
Question 1: Do I need to report the income twice on the U.S. return? This being in the foreign income section and then form 1116 (foreign tax credit form)? If yes though, form 1116 says "enter income that has NOT been reported ANYWHERE else...". If I don't report it on the 1116, I don't get the credit, so my assumption is that I should report it on form 1116, but if so, then by following its instructions I should not report it anywhere else including under the "foreign income" section.
Question 2: If I do report it (again), under the "foreign income" section, this shows that I may "owe tax" which doesn't make any sense since Canada has a higher tax rate and I have already paid them all types of taxes on that employment income. It also doesn't make sense because form 1116 says to report there income that has not been reported elsewhere.
Please help!!
