What to put for spouse FEIE (non-resident alien filing jointly)

[jyee315]

My wife is a non-resident alien (Canada), but I am filing married filing jointly. Below is a snapshot of her condensed T1 for a previous year that I have to amend. 

TOTAL INCOME

Employment income: Box (10100) $86790.19

Taxable amount of dividends from taxable Canadian corporations (Box 12000): $146.44

Interest and other investment income (Box 12100): $5683.16

NET INCOME

Pension adjustment (Box 20600) $13901

Registered pension plan deduction (Box 20800) $11960

RRSP/pooled registered pension plan (PRPP) deduction (Box 20800) $2268.81

Annual union, professional, or like dues (Box 21200) $2268.81

Carrying charges and interest expenses (Box 22100) $1901.37

Deduction for CPP or QPP enhanced contributions on employment income (Box 2215) $60.50

Net income (Box 23600) $68262.87

This is your taxable income (Box 26000) $68626.87

The question is, what do I put for employment income for FEIE. I don't believe putting the full $86790.19 from box 10100 is correct, as she is not taxed on that fully after the deductions. I believe that I should take her taxable income (box 26000) and minus box 12000 and box 12100 (investment incomes) and that should be the value I put on FEIE. On this example, I got $62898.27 that I should put on her FEIE (obviously have to convert to USD). Box 12000 and 12100 should be placed under foreign credits as they are investment incomes. Does that sound right  you guys?

[tagteam]

@pk

[AmeliesUncle · Accepted solution]

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@jyee315 wrote:

TOTAL INCOME

Employment income: Box (10100) $86790.19

Taxable amount of dividends from taxable Canadian corporations (Box 12000): $146.44

Interest and other investment income (Box 12100): $5683.16

NET INCOME

Pension adjustment (Box 20600) $13901

Registered pension plan deduction (Box 20800) $11960

RRSP/pooled registered pension plan (PRPP) deduction (Box 20800) $2268.81

Annual union, professional, or like dues (Box 21200) $2268.81

Carrying charges and interest expenses (Box 22100) $1901.37

Deduction for CPP or QPP enhanced contributions on employment income (Box 2215) $60.50

Net income (Box 23600) $68262.87

This is your taxable income (Box 26000) $68626.87

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Dividends and Interest are not used for the Foreign EARNED Income Exclusion.

Offhand, I don't know the details of the US/Canada Tax Treaty, but as a general rules, just because the foreign country does not treat it as taxable, it does not mean it is not taxable to the US.

So if unless the US/Canada Tax Treaty says otherwise, you need to include the GROSS/Total income on the US tax return.  The non-US retirement accounts and other Canadian deductions don't directly affect what is taxable on the US tax return.

As a side note, if you are filing Jointly, make sure you have a proper election to treat your wife as a Resident Alien.

[jyee315]

In follow up with this question. How should pension payment from Canada characterized as in my US tax return when time comes for my wife to retire. Would it count as income again, but that doesn't seem right either. It just seems like I would get to have my wife's pension income being counted twice. Even though I am not taxed by my wife's foreign Canadian income, it does raise my income and tax bracket, thus it is not inconsequential. 

[AmyC]

Tax treaties generally allow only the resident country to tax the income. See Taxation of Foreign Pension and Annuity Distributions. You can enter the income on your tax return. If she lives in Canada, you can subtract the income back out as miscellaneous other income as a negative amount.

See also:

About Publication 901, U.S. Tax Treaties

Tax Treaty Canada