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I am a U.S. citizen resident in Canada. Does anyone know how to report the various items on a Canadian T4 (a rough equivalent of a W-2) on a U.S. tax return?

I am not sure about the following items:

  • Employee's CPP (Canada Pension Plan) contributions
  • Employee's EI (Employment Insurance) premiums

Do these amounts get subtracted from my Canadian salary as properly reported on a U.S. tax return?

Canada gives me a 15% tax credit for these amounts on lines 7 and 9 of Schedule 1.

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Here is a partial answer. (By "partial" I mean that the answer relies on IRS publications, so it might be overruled by something buried in the US-Canada tax treaty. Does anyone have a good handle on the treaty?)

It appears that the Employment Insurance is eligible for a foreign tax credit, but that the CPP is eligible for neither a credit nor a deduction. From IRS publication 514, Foreign tax credit for individuals,

"What Foreign Taxes Qualify for the Credit?

  1. The tax must be imposed on you.
  2. You must have paid or accrued the tax.
  3. The tax must be the legal and actual foreign tax liability.
  4. The tax must be an income tax (or a tax in lieu of an income tax)"

...............................................................................

"Income Tax

Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. A foreign levy is an income tax only if it meets both of the following requirements.

  1. It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it.
  2. The predominant character of the tax is that of an income tax in the U.S. sense."

..............................................................................

"Pension, unemployment, and disability fund payments.

A foreign tax imposed on an individual to pay for retirement, old­ age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. For more information about these agreements, see Publication 54."

Publication 54 lists the USA has having a social security agreement with Canada, so the CPP apparently gives no deduction or credit.  Furthermore, the CRA website states that EI premiums are calculated on a flat percentage of salary basis, up to certain maximums, so it is apparently available for a tax credit.  (Again, I use "apparently" because I have not yet investigated the tax treaty.)

Update: I see no indication in the treaty that I can take a credit or deductions for the CPP contributions.

  • No, EI is not deductible as well. It is unemployment insurance, not an income tax. – littleadv Apr 18 '15 at 5:38
  • According to the quote from publication 514, above, it is considered a "tax" because "you have to pay it and you get no specific benefit". Furthermore, publication 514 as quoted above SPECIFICALLY DEALS WITH THE CASE OF TAXES IMPOSED FOR UNEMPLOYMENT BENEFITS. – J Tyson Apr 18 '15 at 5:44
  • But you get benefit. You get to get unemployment payments which this tax is explicitly earmarked for. – littleadv Apr 18 '15 at 5:45
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    littleadv- Please read the last bit I quoted from publication 514. The unemployment benefit is specifically covered. – J Tyson Apr 18 '15 at 5:48
  • OK then, go for it. – littleadv Apr 18 '15 at 6:05
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CPP is the equivalent of social security. Like US social security taxes, it is not an income tax and thus cannot be excluded from US income. It is covered by the US-Canada social security totalization agreement, which ensures that you don't get both US social security and Canadian CPP contributions withheld or payable. See https://www.ssa.gov/international/Agreement_Pamphlets/canada.html

I believe that employment insurance is similar; just like US employment insurance premiums, they are considered premiums, not income tax. Box 18 of my Canadian T4 describes them as "Employee's EI premiums".

Note that RPP contributions (box 20 of my T4) are the rough equivalent of US 401(k) or 403(b) contributions. Unlike a US W-2, the T4 includes them in total employment income (box 14 of my T4). My understanding, though I can't find a clear reference, is that they can be excluded from line 7 of the US 1040 just like a 401k contribution.

Someone said that there is no need to report this since foreign earned income can be excluded. That is incorrect. Foreign earned income must still be reported on line 7 of the US 1040. It then gets calculated on form 2555 (regular or EZ), put as a negative number on line 21 of Form 1040, and thus subtracted from income sources in calculating the total income on line 22 of Form 1040. It does figure into tax calculation later on Form 1040, and there are various limitations.

  • As a US employee doing work for a customer based in Canada, If you earn less than 10,000 CAD in a tax year, it's exempt from taxation by the Canadian gov't (meaning you get the withholding back 100%), but the income must be declared on the US tax form in USD (not CAD). Over this amount and you owe the taxes to the Canadian Gov't, not the US gov't. (I'm 99% certain) – GOATNine Mar 28 '18 at 19:24
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There is no need to report any of this since your Foreign Earned Income should be excludable by Form 2555.

  • My taxes are less if I use 1116. – J Tyson May 4 '15 at 0:56

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