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Regarding foreign earned income on Form 1040 and gross income & foreign tax paid on Form 1116

Forum|Forum|3 years ago
March 1, 2023
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Hi,

I'm US citizen and worked in US during 2022.

My wife is Canadian and worked in Canada during 2022. She is neither PR nor citizen of US.

We would like to use the married filing jointly status and treat my wife as resident.

After use TurboTax to compare form 2555 and form 1116, we found form 1116 was more beneficial.

Let's say, my wife has below categories of income in Canada.

Employment Income, the amount is $A, tax deducted on it is $B.

Employment Insurance Benefits (Maternity leave), the amount is $C, tax deducted on it is $D.

RRSP Contribution, the amount is $E.

FYI, RRSP is the Canadian equivalent of the pretax 401k in the US.

1. On the generated 1040 form, we found that the foreign earned income was placed in line1h, is this expected? What should be this value? (A) or (A + C - E) or (A - E)?

2. Regarding the gross income on Form 1116, it should be (A + C), correct?

3. My wife will get some refund (Let's say, the amount is $F) based on her tax return with CRA (Canada Revenue Agency). How do we report this refund in form 1116? Use (B + D - F) in Part II directly or use F in some other lines?

Credit

Best answer by DaveF1006

Let's answer your questions one at a time.

Line 1h is the correct line to report your foreign income on your 1040. I am not sure what those other values you mentioned are pertaining to.
If you are referring to the columns A + C in the gross income column, then there is no A + C because we only talking about Canada and no other countries. There should only be an amount in Column A only. let me know if you are referring to something else.
if your wife receives a refund and you know the amount of the refund, you would only report the net foreign tax paid and not the entire amount.

Here is some additional information on how to report your income if you are married filing jointly.

Treat your spouse as a resident alien for tax purposes. If you do this, you will need to include your spouse's worldwide income in your US tax return and it will be subject to US taxes.

To do this follow these steps.

1. Attach a statement to your tax return, signed by both spouses, that states that one spouse is a nonresident alien and the other is a U.S. citizen or resident alien, and you are choosing to both be treated as US residents for the tax year.

2. List the name, address and Social Security number (or Individual Taxpayer Identification number) of each spouse. If you don't have a SSN, You will need to complete a Form W-7, Application for IRS Individual Taxpayer Identification Number (ITIN) (http://www.irs.gov/pub/irs-pdf/fw7.pdf). This form will be attached to your tax return. Turbo Tax does not support the Form W-7. You can complete it outside of Turbo Tax. You will have to print, sign and mail your return in if you are using Form W-7.

3. For the first year you make the choice, you have to file a joint return. In later years you can file joint or separate returns. Married Filing Jointly will give you a higher standard deduction and has other benefits that are not available using a married filing separately status, but you do have to include your spouse’s worldwide income in joint income.

Reach out if you have additional questions.

K

Kevin0000Author

Hey @Anonymous_ @DaveF1006 , could you please take a look at this post and give some suggestions? Thank you in advance.

DaveF1006Answer

Let's answer your questions one at a time.

Line 1h is the correct line to report your foreign income on your 1040. I am not sure what those other values you mentioned are pertaining to.
If you are referring to the columns A + C in the gross income column, then there is no A + C because we only talking about Canada and no other countries. There should only be an amount in Column A only. let me know if you are referring to something else.
if your wife receives a refund and you know the amount of the refund, you would only report the net foreign tax paid and not the entire amount.

Here is some additional information on how to report your income if you are married filing jointly.

Treat your spouse as a resident alien for tax purposes. If you do this, you will need to include your spouse's worldwide income in your US tax return and it will be subject to US taxes.

To do this follow these steps.

1. Attach a statement to your tax return, signed by both spouses, that states that one spouse is a nonresident alien and the other is a U.S. citizen or resident alien, and you are choosing to both be treated as US residents for the tax year.

2. List the name, address and Social Security number (or Individual Taxpayer Identification number) of each spouse. If you don't have a SSN, You will need to complete a Form W-7, Application for IRS Individual Taxpayer Identification Number (ITIN) (http://www.irs.gov/pub/irs-pdf/fw7.pdf). This form will be attached to your tax return. Turbo Tax does not support the Form W-7. You can complete it outside of Turbo Tax. You will have to print, sign and mail your return in if you are using Form W-7.

3. For the first year you make the choice, you have to file a joint return. In later years you can file joint or separate returns. Married Filing Jointly will give you a higher standard deduction and has other benefits that are not available using a married filing separately status, but you do have to include your spouse’s worldwide income in joint income.

Reach out if you have additional questions.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

K

Kevin0000Author

Hey @DaveF1006 Sorry for the confusion.

A, B, C, D, E, F means

My wife's employment income, whose amount is $A, tax deducted on it is $B.

My wife's Employment Insurance Benefits (Maternity leave), whose amount is $C, tax deducted on it is $D.

My wife's RRSP Contribution, whose amount is $E.

The refund my wife will receive from Canada Revenue Agency, whose amount is $F.

DaveF1006

Yes, in completing your answer, your wife's employment income plus her maternity leave benefits are taxable income so all income amounts should include both of these totals.

As far as your wife's RRSP contribution, it is limited. Here is a Turbo Tax article that explains the limitation and how to determine how to report it. It does require a form 8833 to declare it as explained in the article.

Once you have determined the RRSP amount, then you could apply the formula A + C - E) to determine your foreign income amount that is reported in Line 1h on the 1040. A + C is the Gross income to be reported since maternity leave benefits are taxable income.

Also you will add the foreign taxes from B and D and subtract the refund F to report the amount of foreign taxes that you actually paid out of your pocket that weren't reimbursed.

@Kevin0000

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

P

pk12_2

Employee

@Kevin0000 , having read through the posts above and agreeing with @DaveF1006 , just wanted to add a few little items here ( mostly for awareness );

(a) when making an election to treat a Non-Resident Alien Spouse as a Resident of USA, under 26 CFR 1.6013, this remains valid till one/ both spouse cancels;

(b) it is valid for the entire year i.e. starting date of residency is 01/01/XX

(c) the "Non-Resident" spouse cannot assert any treaty benefits of the "other country" -- in your case of Canada-US treaty. This in particular applies to ( if the "non-Resident spouse" is resident of country X) passive incomes such as interest / dividend etc which are generally limited by treaty to be taxable ONLY by the resident country -- US must be allowed to tax these incomes just as it does for all US person ( citizen/Green Card / Resident for Tax Purposes );

(d) Because the "Non-Resident Spouse" earnings are foreign sourced , when Physical Presence Test is satisfied, foreign Earned Income exclusion may apply .

(e) SECA ( Self-employment taxes) may be levied-- however if you want to take advantage of the totalization agreement ( i.e. pay social security and medicare to one country but not both ) you may have to get a certificate of participation / coverage from one of the countries to show to the other.

Did I leave something out ?

pk