Contract-to-hire income tax issue under TN visa


My situation:

I am a Canadian working in USA under TN visa. I worked in USA less than 180 days in 2006. The first 3 months I worked as contractor, then converted to employee.
My wife and kid are still living in Canada. So, for US income tax purpose, my tax filing status is non-resident alien and I should fill form 1040NR.

My question to fill US income tax form:

The employer sent me a Form 1099 - MISC which listed my contractor income as Other Income. That income looks should be treated as a self-employment income. But 1040NR does not support such an income type. My questions:

A. Where should I report my contractor income in Form 1040NR? In line 8 wages/salaries or line 21 Other Income? Should social security/medicare tax be calculated on this income? If yes, where?

B. I has registered 401K plan after converted to an employee. Can I deduct my contribution to this plan? (If can, which line?)

C. Where to report the withheld Social security and Medicare tax in Form1040NR? Can this tax be deducted as foreign tax when filling Canadian Income Tax?

Thanks a lot.


david ingram replies:

A. The 1099 income goes on line 13 as business income. fill out Schedule C.

B. If you are still living in Canada and paying Canadian tax, get out of the 401(K) plan. It is NOT deductible on your Canadian return and yet you will have to pay tax on it when you take it out. If the employer is paying part, get them to give you the money as salary and put it into an RRSP.

C. Medicare and Social Security are NOT a deduction for an employee.

And, filing a 1040NR does NOT result in Social Security being owed to the US on the 1099 income.

The federal, state (if any), social security and medicare taxes you have paid are a foreign tax credit on line 431 and 433 of your Canadian T1.