Foreign tax credit

[Kat271]

Hello, 

I am a Canadian citizen that moved to the U.S. in 2024 and got my green card. I have foreign income from when I lived in Canada. I used the foreign tax exclusion for my foreign income and am using the foreign tax credit for my foreign unemployment insurance.

When filling out the credit there is a page that says “reductions in foreign taxes” and the first box says 

“2024 Foreign Earned Income Excluded Less Related Deductions” is there where I put the foreign income earned that I stated on my exclusion? 

The second box says “

Total Foreign Earned Income Less Related Deductions” is this the total amount of all foreign income from 2024?

[pk]

@Kat271  let us first clarify the situation

(a) You a Canadian Citizen, moved to USA with Green Card .  When did you actually move ?  How many days did you spend in the USA during 2022, 2023 and in 2024 prior to coming in the Green Card ?

(b)  When to when in  2024 did you work and live in Canada ?

(c) Do you have any US sourced income -- including if you worked on-line for the Canadian entity -- all work performed while in the USA is US sourced income. ?

(d)  From what I gather from your post , ( absent being a Resident for Tax purposes  before moving to US ), you cannot claim Foreign Earned income exclusion not Foreign tax credit  ( I am assuming here that  you are working  on-line for  Canadian entity after moving to the US ).

Please answer my Qs and I will circle back

pk

[Kat271]

I moved to the U.S. April 8th 2024 with a K1 visa. I got my green card in September of 2024. I spend a total of maybe three weeks in the U.S. between 2022, 2023 and 2024 before I moved. I lived and worked in Canada from when I was born to when I moved to the U.S.

All Canadian income was made in Canada and all U.S. income I made was after moving to the U.S. 

I am a resident for tax purposes as I have a green card

[DaveF1006]

Yes and no. You will use the same amount of income you excluded in the first box and total foreign income excluded. The second box will also report the same amount if you excluded all of your foreign income. Differences are reported here in case ‌your income was over the $126,500 threshold and you were trying to claim a foreign tax credit for the excess income over the threshold amount. Your foreign unemployment insurance isn't part of these totals.

Just remember, this is for the income you earned working on a job. You can't exclude your foreign unemployment insurance received because this isn't earned income. This needs to be reported separately.

If you received foreign unemployment insurance, report it here.

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. Call this federal unemployment insurance payments and the amount.

To claim the foreign tax credit, go to:

1. Go to Federal
2. Deductions and credits 
3. Estimate and other taxes paid 
4. Foreign Tax Credit>start or revisit
5.  As you go through the screens, when it asks "Tell Us About Your Foreign Taxes" select none of these apply.
6. When it asks if you wish to take the deduction and credit, take the credit.
7. Continue through until you reach a screen that says "No other income or expenses" Say no
8. Continue through until it asks the income type, say Passive Income
9. Next add a country pick Canada
10. Continue through until you report the full amount of the unemployment insurance payments and the foreign tax paid on this amount. 

[pk]

@Kat271 , so from your post and recognizing that Canada ( like many countries )  is pretty much residency based tax regime.  Therefore  once you have become  a resident of US  ( deemed  Non-Resident  at  GreenCard definitely  but K-1 may also qualify for Canada purposes),  at the earliest date  you were legally in  the USA  -- see -- Residency starting and ending dates | Internal Revenue Service.

(a)   Thus for your form 1040 , you are recognizing only US income  ( per your post -- all US income were post entering US )  -- this is your world income. So I do not understand why you have to deal with foreign income/ foreign tax etc.  ( I am assuming  that your post was describing your total income );

(b) Assuming that you plan to file MFJ, we would run into an issue . Because  your residency start date is  April 8th 2024, you must use  itemized deduction -- you do not meet the requirement for an entire calendar year.  So if your spouse  does meet the  entire calendar year requirement, generally there is no mechanism  to  have one partner as standard and the other as itemized.

Am I missing something here ?

I do recognize my colleague @DaveF1006 's post  and agree as to what he is saying but  I am still stuck  with  "there is no foreign income / tax"  to consider  as I read your post.

Please excuse , if I am reading your post wrong.

[pk]

@Kat271  just wanted to update on the issue of  standard deduction ----

Where as code section 63 does not specifically deal with the exception ( when person married and filing jointly with a US person) does not meet the entire year  requirement ,  IRS pub 551 on page 2  on the follow-on section  / para headed " Not Eligible  for the Standard Deduction" does indeed cover this .   Essentially saying that  if one  US person spouse  meets the standard deduction requirement, then the other spouse is also eligible to  use standard deduction.

So you are in the clear.  Sorry it took me a while to find  the language , even though the statute does not cover this specific situation.

Is there more I can do for you ? 

[Kat271]

I was looking up passive income and unemployment insurance does not count as passive income. So my only other option would be general income category and that brings me back to my original question 

[MarilynG1]

Unemployment income is generally considered 'Passive' income. You could choose 'General' if you like; it won't make a difference in the calculation of the Foreign Tax Credit amount.

For reporting your Canadian Unemployment Income as 'Other Taxable Income', you could use the description 'Canadian Unemployment Income'.  You can use any description you like. 

Here's more detailed info on Claiming the Foreign Tax Credit and Form 2555.

@Kat271