Social Security - WEP clawback if less than 30 years - international non-resident cross border income tax help estate family tru
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 presumptious 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.
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.
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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
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
david ingram wrote:
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$1,600 would be for two people with income from two countries
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Phone consultations are $400 for 15
minutes to 50 minutes (professional hour). Please note that GST is added if
product remains in Canada or a phone consultation is in
Canada.
This is not intended to be definitive but
in general I am quoting $800 to $2,800 for a dual country tax
return.
$800 would be one T4 slip one W2 slip one
or two interest slips and you lived in one country only - no self employment or
rentals or capital gains - you did not move into or out of the country in this
year.
$1,000 would be the same with one rental
$1,200 would be the same with one business
no rental
$1,200 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.
$1,500 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
$1,600 would be for two people with income from two countries
$2,800 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 $150.00 up.
With a Rental for $350
A Business for $350 - Rental and business
likely $450
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 $800 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.
Just a guideline not etched in
stone.
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