Social Security Income Exclusion based on US/Canada Tax Treaty

[nnaseer]

Hi,

Can someone guide me how to exclude a U.S. citizen (resident of Canada) social security income from the US tax return based on the tax treaty between US and Canada.  I am attaching form 8833, however, the software still calculates most of the SS as taxable in the US.

I appreciate any help in the busy time.

Thank you

[Camp1040]

I haven't read the treaty, but I doubt the taxable amount of SS income is excluded from a US tax return from a US citizen, who happens to reside in Canada.

[Terry53029]

Maybe @itonewbie will reply

[itonewbie]

The US-Canada DTA went through a couple rounds of amendments and flip-flopped between source-based and residence-based taxation on social security benefits and whether the provision should be subject to the saving clause.  Eventually, it was settled (at least for the time being) that residence-based taxation will apply and the provision would be excepted from the saving clause.

F.8833 does not alter anything on the tax return.  It is merely a treaty disclosure for position your client is taking on the return.  You will still need to make the relevant entries to take that position on the return.

Having said that, taking a treaty position for social security benefits is specifically exempted from F.8833 disclosure pursuant to Treas. Reg. §301.6114-1(c)(1)(iv).

In terms of exemption, you could either override F.1040, Line 6b to $0 or let it run its course and enter the taxable amount as a negative number on Sch 1, Line 8z with a notation for something along the line of "US-Canada DTA, Article XVIII(5)" to eradicate the taxable income.  I favor the latter because it is less likely to trigger a notice.

Your client should also update the SSA of his/her Canadian residential address either through iClaim or by using SSA-21, if that has not already been done, as the IRS may request information from the SSA.

[nnaseer]

Thank you.