Dual citizen Canada-US, live in US. I have both a w2 (US) and t4 (CDN job) How do I declare correct foreign amount if TurboTax assumes all $$ to be foreign earned?

[carsonschafer]

Turbo Tax wrongly assumes that all my income is foreign, including my w2 and self-employed side hustle. Why can't I make these clear distinctions in the software?

[rjs]

Are you claiming the foreign earned income exclusion or the foreign tax credit?

Do you have three sources of income? You mentioned a W-2, a T4, and self-employment. Where do you actually do the work for each source of income? A W-2 could be foreign income if you work outside the U.S. for a U.S. company. Do you do the work for the Canadian employer in Canada or in the U.S.? Where do you do the self-employment work ("side hustle")?

Where exactly do you see that TurboTax is assuming that all of your income is foreign income?

Are you using TurboTax Online or the desktop TurboTax software installed on your computer? Which edition are you using (Basic, Deluxe, Premier, etc.)?

[carsonschafer]

Thanks for your reply!

BTW I live in LA County, with the fires in January, the tax deadline was extended till October (in case you were wondering why I'm this late!).

I was attempting to claim the foreign earned income exclusion.

Yes I had 3 streams of income last year (2024). I worked a

1) self-employed venture that is local to California

2) part-time position that gave me a w-2 (also in California)

Then, in June of 2024 I quit my w-2 job when I was hired for:

3) a remote full-time position with a company based in Canada (which sent me a T4, their w-2 equivalent I guess). For this work, I was hired remotely, so I still lived in the US the entire time. I was eligible for this position as a Canada-US dual Citizen.

Note that I never lived outside of my resident country (US) in 2024, so Turbotax's two tests to determine foreign income exclusion (physical presence & bonafide residence) didn't seem to fit in my situation based on what I read in their descriptions. Unless I read them incorrectly.

When I tried to declare my foreign income from the Canadian T4 I noticed that it was wrongly lumping the other two US sources (w-2 and self-employed) into that amount, drastically changing my taxes owed amount.

I'm using Turbo Tax on a desktop, and just basic at this point.

Thank you, any advice would be appreciated!

[rjs]

The foreign earned income exclusion only applies to income that you earn for working outside the United States. Since you worked only in the U.S., none of your income is foreign earned income.

Your reading of the physical presence and bonafide residence tests is correct. You do not meet either test, so you do not qualify for the foreign earned income exclusion.

The income from the company in Canada is U.S. income, even though the employer is located in Canada. It doesn't matter where the employer is located. What matters is where you actually work.

The Canadian company is not reporting your income correctly. Employing you to work in the U.S. makes them a U.S. employer. They should have given you a W-2 (and withheld U.S. income tax and FICA taxes). They probably don't want to bother with that, especially if you are their only U.S. employee. I'm not sure what you should do about this. Wait a day or two and see if anyone else replies to this thread. If you don't get any better answer here, you might want to consult a local tax professional.

[carsonschafer]

Wow, thanks for this response. 

It seems like I fell through a crack with foreign earned income then. I very well could be the only US employee for this Canadian company although I know they have several contract workers, but not full-time. Are there big implications for the Canadian company labelling themselves as a US company in order to send me an amended w-2? Hopefully there's someone else in this situation who can chime in. I'll also plan to call the CRA & IRS and see what I find out.

Thanks for your help!

[rjs]

Here's how you can report the income from the Canadian employer on your U.S. tax return, in spite of the employer's error. You enter the income as additional wages that were not reported on a W-2. You will pay income tax on it, and also the Social Security and Medicare taxes that the employer should have withheld. You will pay the same amount that you would have paid if your employer had handled it correctly on a W-2.

Since the employer gave you a T4 I assume that they paid you in Canadian dollars. You have to convert the amount to U.S. dollars. All amounts that you enter in your U.S. tax return must be in U.S. dollars.

Here's how to enter the income in TurboTax.

• Go to Federal Taxes > Wages & Income.
• Click "I'll choose what I work on."
• On the screen "Your 2024 Income Summary," scroll all the way down to the last section "Less Common Income." Click the Start button for the last topic, "Miscellaneous Income, 1099-A, 1099-C."
• On the next screen click the Start button for "Other income not already reported on a Form W-2 or Form 1099."
• The next screen asks "Did you receive any other wages?" Select Yes and click Continue.
• The next three screens ask about household employee wages, sick or disability pay, and Medicaid waiver payments. Click Continue on these three screens without entering anything.
• The next screen asks "Did you earn any other wages?" Select Yes and click Continue.
• The next screen asks the source of the other earned income. "Employee compensation that was not reported on a W-2" will already be selected. Click Continue.
• On the next screen, "Employee Compensation Not Reported on a W-2," click Continue.
• If you are filing a joint return, you will get a screen asking which one of you the income is for. Select your name and click Continue.
• On the next screen, "Report Your Wage Income," enter the employer's name and the total amount of the wages, in U.S. dollars. Under "Employer's Tax ID Number" select "I don't know my employer's tax ID number. For the Reason Code select "H - I received a Form W-2 and a separate Form 1099-MISC and/or 1099-NEC and the income should have been reported on Form W-2." Select code H even though you did not get a 1099-MISC or 1099-NEC. Click Continue.
• Read the next screen, "Report as Wages," and click Done.

The income will be reported on Form 1040 line 1g. Form 8919 will be included in your tax return. Form 8919 calculates the Social Security and Medicare taxes. The total of these taxes will appear on Schedule 2 line 6 and will be included in your total tax liability.

[carsonschafer]

Thanks again for this reply, I really appreciate it!

Your directions are very clear, and I really appreciate the thorough instructions. But I guess I have some concerns going down this road --mainly double taxation.

From what you're advising, it seems like you're directing me to just claim this income as income from a US employer why failed to give me a w-2. My issue is, I've already been taxed by the Canadian government on that income, and I don't need to pay taxes to two countries for one income. There's no indicating that this income came from a foreign country in your suggested process. There is a Canadian Tax ID number for the employer, so it doesn't seem necessary to pretend that there isn't. How would I later get reimbursed for double taxation if I don't enter the Canadian employer's Tax ID #? I would miss out on my tax refund that I'm owed by the CRA.

(Important note: I'm in the process of changing to non-resident citizen status, thus why I haven't filed my Canadian taxes yet --I was advised to do my US taxes first by the CRA).

My understanding of "declaring world income" (and I'm definitely no expert) is that you're just stating that you have income from a different country, and need to be upfront on all your streams so that each country is in the loop. My plan has always been to file my Canadian income on a separate instance of Turbotax.ca (like I did before I moved to the US) and notify them of my US world income, that they are not entitled to. But if I claim this income under the guise of a US employer who failed to give me w-2, forfeiting my Canadian return.

[rjs]

"it seems like you're directing me to just claim this income as income from a US employer why failed to give me a w-2."

The income IS from a U.S. employer that failed to give you a W-2. A business with an employee in the U.S. is a U.S. employer. It doesn't matter if the employer's headquarters is in another country.

"There's no indicating that this income came from a foreign country"

The income is not from a foreign country. It's from work that you performed in the United States. It is U.S. income.

"There is a Canadian Tax ID number for the employer"

The Canadian tax ID number means nothing to the IRS. There is no place to put a Canadian tax ID number anywhere on a U.S. tax return. Nothing you enter in your U.S. tax return has anything to do with your refund from Canada. Your Canadian refund comes from your Canadian tax return.

"My issue is, I've already been taxed by the Canadian government on that income, and I don't need to pay taxes to two countries for one income."

You need to look into the foreign tax credit. That's a credit on your U.S. tax return for income tax that you paid to another country. It reduces your U.S. tax to compensate for the tax you paid to Canada. It's very complicated, and I don't know much about it.

You could just go through the foreign tax credit interview in TurboTax. Go to Federal Taxes > Deductions & Credits. Under "Estimates and Other Taxes Paid" click the Start button for Foreign Taxes. I don't know how thorough this is.

You also need to take into account the tax treaty between the U.S. and Canada. I have no idea how that might affect your situation. This is one reason that you probably should consult a local tax professional who is familiar with U.S. and Canadian taxes.

In preparing your Canadian tax return, keep in mind that the income you received from your Canadian employer is U.S. income, not Canadian income. You earned it for working in the United States. You did not work in Canada. I'm not familiar with Canadian tax laws, but they probably should not have issued the T4, and probably should not have deducted Canadian tax from your pay. This is something else to discuss with a tax professional. Your situation is made more complicated by the employer not having handled it correctly.

There is another Champion in this U.S. TurboTax community who is more familiar with foreign taxes than I am. I don't know how much he knows about Canada specifically, but let's ask him.  @pk  can you help with this?