I'm a U.S citizen working/living in Canada. I didn't work/receive any US income. I got a letter from IRS for "interest income" ($215), do I include this as foreign income

[melodylong-ml]

The letter I received from the IRS is form 1099-INT. I am not sure why I received this letter, but it says "Total interest paid or credited: $215.75"

[pk]

@melodylong-ml , is it possible that you got that interest payment  from the IRS because  of delayed refund  or adjustment etc. ?  If that is the case then this is  US sourced income and recognized/reported on your US filing for the year in which you received the interest amount.  If you have to include this on your Canadian tax filing ,  and Canada taxes this  interest then you may have to  file form 1116  to claim  FTC  with income being resourced by treaty.  All this depends on  exact facts and circumstances. 

So please tell more on what this is --yes ?

[melodylong-ml]

This is the letter I received. I'm hoping I do not have to include it on my Canada taxes as then I won't have to claim any foreign income.

[pk]

@melodylong-ml  , you have to recognize  this income for US purposes.  I need to refresh my memory on US-Canada Tax treaty  ( if there is a carve out for  govt. payments  like it is for Social Security ).  Give me a couple of hours and I will get back.

pk

[pk]

@melodylong-ml  sorry it took  "many" couple of hours.  Bottom line is there is no carveout  for  interest  paid from public funds.

  Given  the amount of interest earned , it would not affect you anyways.  I am assuming that all your Canadian active earnings / wages would be exclude  by Foreign Earned Income Exclusion ( FEIE ).  Thus for US purposes

1. If there is no unexcluded  FEI, then the interest income would not   create a US tax liability;

2. If there is unexcluded income that both Canada and US tax then obviously  this  interest earnings ( from US/IRS) would indeed  add to the US tax burden.   By using form 1116 and using two copies ( one for general category covering the unexcluded  & doubly taxed income  AND a second for  " resourced by treaty " for the  interest income ), you would essentially  get back to "no or near No"  US tax  through  Foreign Tax Credit.

I did go through  the US versions of the Tax treaties, US Technical explanations as also the Canadian version of the  Tax Treaty. .  Generally  interest / div incomes are  sourced  to the resident state, however because of  the "saving clause " US can still tax  its citizen/ GreenCard   for US sourced income.  Thus  my conclusion.

 Thank you for your patience.

Is there more I can do for you .

pk