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I am a US citizen and my new wife is Canadian, on medical retirement from Federal Gov. Her only Canadian income is Disability checks and Pension plan. We draw from her Canadian bank account where these checks are automatically deposited with taxes already withheld.
When I file my next US 1040, will her income be also taxed as income by IRS?
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david ingram replies:
I am assuming that you are both living in the USA and will be filing a US Joint 1040
Your wife should notify the payer sof her pensions that she is no longer a resident of Canada. At that time, the payers of her pensions will start withdrawing 15% under Article XVIII of the US / Canada Income tax convention. That should be her only tax to Canada.
You will then report the gross amount of the pensions to the US government and calculate the tax. File a form 1116 to claiom credit for the taxes paid to Canada.
If (as I suspect) the Canadian payers do not know that she is a non-resident and have been deducting tax at a different rate than 15%, your wife will have to file a Canadian tax return to adjust the withholding for this year. (That's what we do by the way). If the Canadian payers have only been deducting 10 or 11%, she would owe the difference ot Canada. If they have been withholding 21 or 27%, she will get a refund.
If she is getting Canada Pension Plan disability and Old Age Security, these are treated differently in both countries. Canada will NOT tax them at all. The US will tax 85% at the most because they are treated as social security
This year you will go crazy trying to find anyone to understand the returns. We have six full time people dealing with US / Canadian OUT of Country tax situations and do a major part of our business by mail, fax, email and courier. Americans and Canadians in Kuwait and Dubai and Saudi Arabia and Thailand just mail them in.
.
David Ingram of the CEN-TA REALTY Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
American / Canadian Out of country tax specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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