Blog post

Key Points

• U.S. Social Security payments to Canadian residents are subject to a 25.5% withholding tax by the IRS.
• The Canada-U.S. tax treaty can reduce the withholding tax on Social Security payments to 15% for Canadian residents.
• Social Security benefits must be reported on Canadian tax returns and may be partially taxable in Canada.
• Proper planning can help minimize the tax impact of receiving U.S. Social Security payments in Canada.
• Consulting with a cross-border tax expert is essential to navigate the tax implications of U.S. Social Security in Canada.

If you need help in reviewing your cross-border tax or investment situation, please feel free to reach out to us here. We look forward to speaking to you soon.

Question

Hello Phil

I have very much enjoyed watching your You Tube episodes…very informative and helpful! Thank you so much! I have a question concerning Episode 11. I am a US/Canadian dual citizen/Canadian resident and started receiving US Social Security payments in 2022. My husband, a nonresident alien for US Tax Purposes, also began receiving US Social Security Spousal Benefits. From your You Tube episode and other research I have done, I understand that we only need to pay taxes on these benefits in Canada. However, I am unsure how to treat it on our US Tax Returns. One source said, “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.”

Page 3 of Form 8833 says (bolding my emphasis):

Exceptions from reporting. Regulations section 301.6114-1(c) waives reporting on a Form 8833 for certain treaty-based return positions. In some instances, the waiver narrowly applies to exempt from reporting a treaty position that is
specifically reportable, and thus careful review of the regulations is advised. In addition, some waivers do not apply to positions that are specifically required to be reported under these form instructions. See Reporting specifically required by Form 8833 instructions, later.

Positions for which reporting is waived include, but are not limited to, the following. See Regulations section 301.6114-1(c) for other waivers from reporting.

That a treaty reduces or modifies the taxation of income derived by an individual from dependent personal services, pensions, annuities, social security, and other public pensions, as well as income derived by artists, athletes, students, trainees, or teachers;

With this in mind, do you still recommend filing Form 8833? If so, on both my 1040 and on my husband’s 1040-NR? Does he even need to file a US Tax Return when he has no other US Sourced Income?

Thank you so much for your help as I try to navigate these unfamiliar waters!

Answer

Hi XXXXXXX

Thank you for being a subscriber to the Youtube channel and for the kind words, very much appreciated.

This is not considered tax advice, however I can give you my thoughts:

If your husband is not a US person and only receiving US social security from the US he shouldn’t have to file a 1040-NR.

Even if he was a US person I tend to file the 8833 with the return anyways (even though it’s not technically required) because the IRS tends to issue inquiries on the account if social security exemption is not mentioned in the return.

Hope that helps!

Cheers

Phil