Yes, this does need to be reported on your US tax return. Here is how to report and claim a foreign tax credit for taxes paid in Canada.
Since a LIRA is a foreign retirement account, it doesn't have a standard US 1099-R form. The "Miscellaneous Income" method is generally the smoothest to avoid e-file errors.
- Go to the Federal tab and select Wages & Income.
- Scroll down to the Less Common Income section.
- Select Start next to Miscellaneous Income, 1099-A, 1099-C.
- Scroll to the very bottom and select Start next to Other reportable income.
- Answer Yes to "Any Other Taxable Income?"
- Description: Enter "Canadian LIRA Distribution."
- Amount: Enter the Gross Amount (the total before the 20% was taken out) in USD.
To claim the foreign taxes paid as a credit:
- Go to Deductions & Credits.
- Scroll down to Estimates and Other Taxes Paid and select Start next to Foreign Taxes.
- Answer Yes to "Did you pay foreign taxes?"
- Continue through the screens until you reach "Do You Want the Deduction or the Credit?" Select Take a Credit.
- Select Income Type: Choose Passive Income (this is the correct category for most one-time retirement withdrawals).
- Add a Country: Select Canada.
- Enter Gross Income: Enter the same Gross USD amount you entered in Part 1.
- Enter Foreign Taxes Paid:
- Enter the 20% amount (in USD) that was withheld.
- Enter the Date Paid (the date the bank sent you the money).
- Continue through the interview until you reach the Foreign Tax Credit Summary to confirm the credit is appearing.
You don't need to report this on your Canadian return since you are a US resident under the terms of the US/Canadian tax treaty.
[ Edited 02/25/2026 I 3:51pm PST]
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