US Social Security for a Canadian -

QUESTION:
I am a Canadian working in the US and living in Canada.  I have been working in the US for over 8 years now.  When I started working in the US, I was advised to pay US Social Security for 10 years to become eligible to receive US Social Security when I retire (in about 20 years).  My question is am I doing the right thing?  I was looking at a new job in Canada recently, and the US Social Security was one of the factors in my decision to not take the job.  What I have read on the internet is that the US Social Security I would receive would be reduced from any CPP I would receive, so I beleive there is no advantage to continue paying into US Social Security or tocontinue working in the US to get my 10 years of service/paying into US Social Security.  Please advise if this is the case.

Thanks

xxxxxxx xxxxxx
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david ingram replies:

I went to Kelvin High in Winnipeg with a person with your name.  Any change it was your father?

You were given bad advice. 

To qualify for a full US Social Security Pension, you need to work and contribute for FORTY YEARS, NOT TEN.

A US resident / citizen who has only lived in the US has to contribute for 10 years to qualify for a 1/4 pension AND to qualify for the cheapest medical.

But a Canadian can qualify for 'something' after contributing for 6 quarters which is possible to qualify for by working one fiscal year which spans two years. 

A Canadian has to work in the US for THIRTY years to avoid the WEP.

The US Canada Social Security Totalization Agreement  allows you to use time in Canada with contributions to the CPP to make up the ten years time. You will always get more the longer you work int he US but you have to work 30 years to get the most of the percentage because of the WEP.  A link to the agreement is provided below.

In other words, if you worked for 3 years in the US and only worked for 7 years in Canada, you would qualify for something from Social Security.  At the moment, you likely have 32 quarters.  Your US pension would be something like 32/160 times something short of  the maximum because of the WEP (Windfall Elimination Provision).  Of course, you would have had to work in Canada for two years for the Totalization Agreement to take effect to make up ten years.

The following talks about the WEP.
------------------------------------------------------------

David,

Your statement:  WEP only applies if you paid into another system and not into FICA for 30 years or more.

Is not correct!  I lived & worked in Canada for 5 years before moving back to the US.  When I applied for SS at age 62 with over 30 years of FICA contributions, I got whacked with WEP, not for income from CPP (for which I have not yet applied,) but for a Canadian private annuity from the University for which I worked.

It didn’t seem quite fair, so I protested and got it reviewed, to no avail.  I was also told that if I apply and got any CPP payments, I must also inform SS and my payments would be further reduced.

BTW: I use your former colleague, Gary (in Texas) to do my tax preparations.

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david ingram replies:
The reason you are / were penalized is that Canadian University pensions are 'blended' pensions and there is a CPP component.  It is the same problem US teachers have between Florida and Oklahoma.   When the Canada Pension Pan was brought in in 1966, University professors objected strongly to making new payments because 'professors'  were professionals with University pensions and the CPP was aimed at lowly non-professional employees.  As a consequence, University pension premiums were reduced by the amount of the CPP premiums and the two were blended and both fall under the WEP legislation. 

I am not a WEP specialist by any means.  I have NEVER attempted the calculation.  However, my understanding is that you will always get more even if there is a claw back.

david ingram


 On Behalf Of US / Canada Income Tax Help - CEN-TAPEDE
Sent: Sunday, February 03, 2008 2:20 AM
To: CENTAPEDE; jurock
Subject: US CANADA Social Security - WEP clawback if less than 30 years - international non-resident cross border income tax help estate family trust assistance expert preparation & immigration consultant david ingram, income trusts experts on rentals mutual funds

 
QUESTION: I am a Canadian citizen living and working in the US. I just got my Permanent Residency this year through marriage to a 
US citizen and plan to work in the US for the next 30 years.  My husband and I then plan to retire to Canada and we want to maximize 
our social security benefits.  I am the high-earner (and green card holder) so my social security benefit will be important to our quality 
of life as retirees.  I understand that if I retire to Canada as a permanent resident, not only will I need to maintain permanent residency,
but I will also only receive half of the social security benefit while living in Canada.  My question is, if I get my US citizenship will I receive 
the full social security benefit when we retire to Canada?
  ---------------------------------------------------------------------------
david ingram replies; 

Since the US social Security Administration and 5 or 6 Presidential candidates don't really know what is happening with social security, next year, it would presumptuous of me to guess what s going to happen 30 years from now.

However, if you were retiring today with thirty years of contributions to the Social Security system, you would receive 30/40 of the maximum pension you had qualified for because you have to contibute for 40 yers to get a full pension. 

If you moved to Canada, there would not be any reduction but Canada always taxes 85% of it whereas at incomes of under $35,000 for a couple and $25,000 for a single person, the US does not tax any social seurity benefits. Above that there is a floating scale until the US also taxes 85% o fthe amount received.

HISTORY


Now in 1995, Canada only taxed 50% of Social Security, in 1996 and 1997, Canada did not tax social security, and from 1998 on, Canada is taxing 85%. 

I do not have a clue what it will be in 2038.

Now the 85% rule does not mean that Canada will take 85% as tax.

In today's dollars, if your gross income was under $35,000 and $10,000 of that was social security, only $8,500 would be taxable and the tax would be a maximum of about 24% (depending upon the province) or $2,040.  In addition, you can claim a $2,000 pension income deduction amount which would reduce your tax by a further 24% of 2,000 or $480 making a net Canadian tax to you on $10,000  of  ($2040 - $480) $1,560, a far cry from the 50% you suggest in your question. Even if your Caandian income was $50,000 each, you would only b paying about $2,500 tax on the $10,000 Social Security.

Now that was easy because your question said 30 years.   If you pay in to FICA (Use Social Security) for less than 30 years, there is a bit of a clawback under WEP (the Windfall Elimination Provision).  This has nothing to do with Canada per se. It would apply to a US citizen school teacher who worked for 20 years in Florida and moved to Oklahoma for another 25 years.  Because one of those states has its own Pension fund and its teacher employees pay into the state plan instead of Social Security, just as people who work in Canada pay into  Canada Pension Plan instead of  FICA.

The assumption is that the other pension makes up for the clawback under WEP but that is just not true.  However, there is a move to cancel the WEP and hopefully it will not apply next year let alone 30 years from now.

Note that WEP does not apply if you only paid in for 25 years because that is all you worked.  WEP only applies if you paid into another system and not into FICA for 30 years or more.

This older q & a will give you some more infromation and a look at the US/Canada Social Security Totalization Agreement.  Article XVIII of the US Caanda Income Tax Treaty also applies.

taxman@centa.com: Please see bottom of message if you wish to unsubscribe. ------------------------------------------



QUESTION:

I am a Canadian citizen who left Canada to work in the USA for 5 years. I have since retuned to Canada where I plan to stay. I was wondering if the money I paid into Social Security while in the states is lost or is there a way to transfer the money back to Canada??
 

------------------------------------------
david ingram replies:

This older Q & A might help


QUESTION:

Hi David,

I have been working in USA for last 10 years under TN visa and have been paying FICA etc in US but have not filed return to Canada until 2006.

Can I benefit from all the FICA payments later or should I find a way/if there is any way to transfer it to Canadian retirement?

Thanks

__________________________________________________________________________
david ingram replies:

Answered many times - just last week in fact, and reproduced here with a slight improvement suggested by Andrew Nelson
-----------------------


QUESTION: My apologies if this questions have asked many times before.I could not find right and easy answer for this.

I am a Canadian citizen working in USA under TN visa for last 2 yrs. I wonder what will happen for social security tax i pay in USA.Does it goes to Canadian social security.Is it possible to get refund ?

Thanks in advance.
 

__________________________________________________________
david ingram replies;

The US Canada Social Security Totalization Agreement means that you will be able to collect Social Security from the US when you retire whether you have 1 year ( technically 6 quarters which can be earned from July to June which is one year but if you started working on Jan 1, you would need to work 1 year and another $2,000 or so in another year to qualify.    For 2007, you need just short of $1,000 of earnings to qualify for one quarter.)

The actual agreement in all its glory CAN BE FOUND AT:
 
http://www.socialsecurity.gov/international/Agreement_Pamphlets/canada.html



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On Mar 14, 2008, David Ingram wrote:

It is very unlikely that blind or unexpected email to me will be answered.  I receive anywhere from 100 to 700  unsolicited emails a day and usually answer anywhere from 2 to 20 if they are not from existing clients.  Existing clients are advised to put their 'name and PAYING CUSTOMER' in the subject line and get answered first.  I also refuse to be a slave to email and do not look at it every day and have never ever looked at it when I am out of town. 
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However, I regularly search for the words"PAYING CUSTOMER" and always answer them first if they did not get spammed out. For the last two weeks, I have just found out that my own email notes to myself have been spammed out and as an example, as I wrote this on Dec 25, 2007 since June 16th, my 'spammed out' box has 47,941 unread messages, my deleted box has 16645 I have actually looked at and deleted and I have actually answered 1234 email questions for clients and strangers without sending a bill.  I have also put aside 847 messages that I am maybe going to try and answer because they look interesting. -e bankruptcy expert  US Canada Canadian American  Mexican Income Tax service and  help
Therefore, if an email is not answered in 24 to 48 hours, it is likely lost in space.  You can try and resend it but if important AND YOU TRULY WANT OR NEED AN ANSWER from 'me', you will have to phone to make an appointment.  Gillian Bryan generally accepts appointment requests for me between 10:30 AM and 4:00 PM Monday to Friday VANCOUVER (Seattle, Portland, Los Angeles) time at (604) 980-0321.  david ingram expert  US Canada Canadian American  Mexican Income Tax  service and help.
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Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included." e bankruptcy expert  US Canada Canadian American  Mexican Income Tax  service and help.
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Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST if in Canada) expert  US Canada Canadian American  Mexican Income Tax  service and help.
This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.
$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,200 would be the same with one rental
 
$1,300 would be the same with one business no rental
 
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up.
 
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
 
A Business for $400 - Rental and business likely $550 to $700
 
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.
 
This from "ask an income trusts tax service and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax returns with multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston, Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax  Immigration Wizard Antarctica Rwanda Guru  Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US Income Tax Convention. Advice on bankruptcy  e bankruptcy expert  US Canada Canadian American  Mexican Income Tax service and help .

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