US Citizen, Resident in Canada - Entering CPP and OAS under Social Security

[MaryLou5]

Since CPP and OAS are not taxed in the US if one is resident in Canada (they are only taxed in Canada), how can I update TurboTax Social Security Line 6a with the CPP+OAS amount and Line 6b with $0 since it is not taxable income?

I can not see a way of over-riding the Social Security Taxable amount field, 6b, and set it to zero. 

[ThomasM125 · Accepted solution]

I think you want to report the social security income but have it show as not taxable in line 6(b) of Form 1040. You will need to report the social security income as if it was reported on a US Form SSA-1099, then enter a negative adjustment to income to cancel out the income appearing on line 6(b). You must list on the tax return the treaty that exempts the income from taxation.

 You can make that adjusting entry in TurboTax as follows:

1. From the Federal menu in TurboTax find Wages and Income 

2. Find Less Common Income

3. Choose Miscellaneous Income, 1099-A, 1099-C

4. Choose Other Reportable Income

5. Enter a description of the treaty and the adjustment as a negative number

You must complete Form 8833 Treaty-Based return position disclosure and include it with your return. That form is not available in TurboTax, so you will need to complete that separately and attach it to your tax return that you would mail in. Here is a link to the form:  Treaty income adjustment

[MaryLou5]

Thank you for the clear answer.  

Two followup questions:

1 - Since you state that the form 8833 is required for every US citizen living in Canada who receive Canadian CPP or OAS, must ALL of the US tax forms(1040..etc...) be submitted on paper, rather then electronically with TurboTax?    

2 - How does a layperson, like myself, find out what the specific Articles, Provisions, Sub-sections, etc. are required to use on the f8833 form, since almost every US (senior)citizen residing in Canada has to state the exact same information on the form for the Canada Pension Plan income to be exempt?

Thanks again..

[AmyC]

1. In Claiming Tax Treaty Benefits we see there are exceptions to filing the form. If all of your income falls into these categories, you do not have to file the form and can efile your return.

The payee does not have to file Form 8833 for any of the following situations:

1. The payee can claim a reduced rate of withholding tax under a treaty on interest, dividends, rent, royalties, or other fixed or determinable annual or periodic income ordinarily subject to the 30% rate.
2. The payee can claim a treaty exemption that reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions, or income of artists, athletes, students, trainees, or teachers. This includes taxable scholarship and fellowship grants.
3. The payee can claim a reduction or modification of taxation of income under an International Social Security Agreement or a Diplomatic or Consular Agreement.
4. The payee is a partner in a partnership, or a beneficiary of an estate or trust and the partnership, estate, or trust reports the required information on its return.
5. The payments or items of income that are otherwise required to be disclosed total no more than $10,000.

2. Keep the link above handy so when it is updated, you will have the latest facts.

Bonus answer from Form 8833:

The payee must file a U.S. tax return and Form 8833 if claiming the following treaty benefits:

1. A reduction or modification in the taxation of gain or loss from the disposition of a U.S. real property interest based on a treaty.
2. A change to the source of an item of income or a deduction based on a treaty.
3. A credit for a specific foreign tax for which foreign tax credit would not be allowed by the Internal Revenue Code.

The payee must also file Form 8833 if the payee receives payments or income items totaling more than $100,000 and determines the country of residence under a treaty and not under the rules for determining alien tax status

Plus an FAQ for international individuals. and US Canada Treaty

[AllenW2]

I've read the IRS instructions for Form 8833, and I understand that it's not required for income from a foreign pension. But does the pension income still need to be reported somewhere in the recipient's U.S. tax return? If so, where and how does one indicate that it's not taxed? If not, the recipient can simply omit the income altogether?

[LeticiaF1]

U.S. citizens and resident aliens are required by Federal to report their worldwide income.  Some pensions and annuities may be exempt from the income tax of treaty countries.  If yours is not then it must be reported as retirement income, it would need to be reported on line 5 of Form 1040.  For more information see IRS Publication 54.  

@AllenW2 

[AllenW2]

But if a pension is exempt because a treaty says so (a government pension received by a U.S. citizen living in Canada, for example), is it still reportable?  If so, how? I've seen conflicting opinions on whether a Form 8833 needs to be submitted with the tax return, even though the IRS instructions for this form clearly say that it doesn't apply to pensions.

If it's not reportable, then it can simply be omitted from a tax return?  IRS Publications 54, 597 and 901 say nothing about reporting requirements one way or the other.

[JotikaT2]

It depends upon which country issued the pension income.

If the pension was from Canadian sources, then you would be subject to U.S. taxes up to the amount that would have been included on a Canadian return if you were considered a Canadian citizen.  Canada limits the tax to 15% of the gross amount received.  Please see the excerpt from Publication 597, Information on the United States-Canada Income Tax Treaty.

Pensions are not considered exempt from U.S. tax per Publication 901.  Please see the excerpt for pensions below.

This income would not be reported on Form 8833, but would be reported on your 1040 form.  You can file Form 1116 to obtain a foreign tax credit for any taxes paid in Canada that relate to the pension income that is also taxable in the United States.  This will ensure you receive a credit for any taxes already paid to Canada and will be used to offset the tax due on your U.S. tax return.

@AllenW2 

[AllenW2]

You're describing how a U.S. resident would handle this.  I was asking about a U.S. citizen residing in Canada.  According to the treaty, Canada Pension Plan payments to residents of Canada are not taxed in the U.S. 

My question is whether these payments must be reported on a Canadian resident's 1040, and, if so, how.  I've heard different opinions about whether a Form 8833 needs to filed, but  the IRS instructions for this form are very clear that it does not.  These instructions refer to Regulations section 301.6114-1(c), which says that reporting requirements on a Form 8833 are waived for "income derived from dependent personal services, pensions, annuities, social security and other public pensions."