Question

I'm a U.S citizen working/living in Canada. I didn't work/receive any US income. I got a letter from IRS for "interest income" ($215), do I include this as foreign income

Forum|Forum|1 year ago
February 23, 2025
1 reply
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The letter I received from the IRS is form 1099-INT. I am not sure why I received this letter, but it says "Total interest paid or credited: $215.75"

P

pk12_2

@melodylong-ml , is it possible that you got that interest payment from the IRS because of delayed refund or adjustment etc. ? If that is the case then this is US sourced income and recognized/reported on your US filing for the year in which you received the interest amount. If you have to include this on your Canadian tax filing , and Canada taxes this interest then you may have to file form 1116 to claim FTC with income being resourced by treaty. All this depends on exact facts and circumstances.

So please tell more on what this is --yes ?

M

melodylong-mlAuthor

This is the letter I received. I'm hoping I do not have to include it on my Canada taxes as then I won't have to claim any foreign income.

P

pk12_2

@melodylong-ml , you have to recognize this income for US purposes. I need to refresh my memory on US-Canada Tax treaty ( if there is a carve out for govt. payments like it is for Social Security ). Give me a couple of hours and I will get back.

pk

@melodylong-ml sorry it took "many" couple of hours. Bottom line is there is no carveout for interest paid from public funds.

Given the amount of interest earned , it would not affect you anyways. I am assuming that all your Canadian active earnings / wages would be exclude by Foreign Earned Income Exclusion ( FEIE ). Thus for US purposes

1. If there is no unexcluded FEI, then the interest income would not create a US tax liability;

2. If there is unexcluded income that both Canada and US tax then obviously this interest earnings ( from US/IRS) would indeed add to the US tax burden. By using form 1116 and using two copies ( one for general category covering the unexcluded & doubly taxed income AND a second for " resourced by treaty " for the interest income ), you would essentially get back to "no or near No" US tax through Foreign Tax Credit.

I did go through the US versions of the Tax treaties, US Technical explanations as also the Canadian version of the Tax Treaty. . Generally interest / div incomes are sourced to the resident state, however because of the "saving clause " US can still tax its citizen/ GreenCard for US sourced income. Thus my conclusion.

Thank you for your patience.

Is there more I can do for you .

pk