There are two possible places to enter Canadian sourced retirement income in the TaxAct program.
- In the Social Security section to transfer to IRS Form 1040 U.S. Individual Income Tax Return, Lines 5a and 5b.
- On the worksheet FEC Foreign Employer Compensation and Pensions to transfer to Lines 4c and 4d of Form 1040.
Canadian-source retirement income
By provision of the income tax treaty between the U.S. and Canada, benefits paid under the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) program to a U.S. resident are taxable, if at all, only in the United States.
These Canadian benefits are treated as U.S. social security benefits for U.S. tax purposes. Thus, under section 86 of the Internal Revenue Code, the portion of the benefits that is taxable will depend on your total income.
If your total income is above certain limits, a maximum of 85% of your benefits will be subject to U.S. tax.
Canadian benefits that are treated as U.S. social security benefits are reported on Lines 6a and 6b on Form 1040.
To enter this information in the TaxAct program:
- From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
- Click Social Security Benefits in the Federal Quick Q&A Topics menu.
- Continue with the interview process to enter all of the appropriate information.
If your Canadian retirement income does not meet the provisions of the income tax treaty between the U.S. and Canada (benefits paid under the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) program) to be taxable to a U.S. resident as U.S. social security benefits for U.S. tax purposes, you will need to enter the information on the FEC worksheet.
To enter the retirement income on the worksheet:
- From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
- Click Retirement Plan Income in the Federal Quick Q&A Topics menu to expand, then click Foreign pension distributions.
- Click + Add Form 1040 FEC to create a new copy of the form or click Edit to review a form already created.
- Continue with the interview process to enter all of the appropriate information.
The FEC worksheet is not an IRS form but is a worksheet provided only in the TaxAct program used to collect the information and transfer it to the appropriate place on the return. All information entered on the worksheet is transmitted with the return if it is electronically filed. If the return is paper filed, there is no documentation required to be sent with the return. The IRS will contact the taxpayer if they need any additional information on the amount entered on the return for foreign retirement income. If you would still like to print the FEC worksheet to mail with the return, the following steps will allow you to do that.
Online Navigation Instructions
- From within your TaxAct Online return, click Print Center down the left column, then click Custom Print.
- Check the items you wish to print (the top section contains individual forms or schedules and the bottom contains documents or worksheets). You may need to scroll down in the section to locate the items.
- Click Print, then click the PDF link. Click the printer icon or the save icon (available when you hover your mouse over the PDF form) to print or save the PDF copy.
Note. If you see a message indicating you have not paid your return fees, click the View/Pay your return fees link, which will direct you through the Paper Filing steps. Continue through the screens until you have processed the payment for your product fees and then repeat the steps to print.
Desktop Navigation Instructions
- Start your TaxAct Desktop program.
- Click Forms in the top left corner.
- Click to expand the Federal folder, then click to expand the Documents Received folder.
- Click to expand the section titled Form 1040 FEC - Foreign Employer Compensation and Pensions, then double-click the copy you wish to print.
- Click the Printer icon in the toolbar.
In the print dialog box that appears, you can send the output to a printer or a PDF document. If you wish to only print preview the document, check Print Preview. Once the print preview window opens, click Print to actually print the document.
Related Links
- IRS Publication 54 Tax Guide for U.S. Citizens and Resident Aliens Abroad
- IRS Publication 597 Information on the United States–Canada Income Tax Treaty
- IRS Publication 901 U.S. Tax Treaties
Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.
I bring a wealth of expertise and in-depth knowledge to guide you through the intricacies of entering Canadian sourced retirement income in the TaxAct program, particularly in relation to the U.S.-Canada income tax treaty. My understanding is rooted in the specific provisions of the treaty and the corresponding tax implications for U.S. residents.
Let's break down the concepts discussed in the article:
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Canadian Retirement Income and U.S. Taxation: The article discusses two potential places to enter Canadian sourced retirement income in the TaxAct program: the Social Security section and the FEC (Foreign Employer Compensation and Pensions) worksheet.
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Tax Treatment under the U.S.-Canada Income Tax Treaty: The income tax treaty between the U.S. and Canada stipulates that benefits paid under the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) program to a U.S. resident are taxable in the United States. These Canadian benefits are treated as U.S. social security benefits for U.S. tax purposes.
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Section 86 of the Internal Revenue Code: Section 86 of the Internal Revenue Code is invoked, indicating that the portion of the benefits taxable in the U.S. depends on the total income. If the total income exceeds certain limits, a maximum of 85% of the benefits will be subject to U.S. tax.
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Reporting on Form 1040: Canadian benefits treated as U.S. social security benefits are reported on Lines 6a and 6b on Form 1040.
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Entering Information in TaxAct: Detailed instructions are provided on how to enter this information in the TaxAct program, both in the Social Security section and on the FEC worksheet.
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FEC Worksheet and Electronic Filing: The FEC worksheet, while not an IRS form, is utilized in the TaxAct program to collect information and transfer it to the appropriate place on the return. Information entered on the worksheet is transmitted with the return in electronic filing.
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Paper Filing and Documentation: If the return is paper filed, no documentation is required to be sent with the return. The IRS will contact the taxpayer if additional information on the foreign retirement income is needed.
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Printing FEC Worksheet: Instructions for printing the FEC worksheet for paper filing are provided for both TaxAct Online and Desktop users.
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Related Links: The article includes links to IRS publications for further reference:
- IRS Publication 54: Tax Guide for U.S. Citizens and Resident Aliens Abroad
- IRS Publication 597: Information on the United States–Canada Income Tax Treaty
- IRS Publication 901: U.S. Tax Treaties
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Note on Link Validity: A note emphasizes that the links provided are automatically updated each year to redirect users to the most recent version of the document at the time of access.
This comprehensive overview should assist you in navigating the TaxAct program and fulfilling your tax obligations related to Canadian sourced retirement income.
