I have a Canadian equivalent of an IRA (RRSP/RRIF in Canada) that I am required to take RMDs starting in 2022.
The good news is they automatically took care of the distribution to our Canadian checking account and have provided the appropriate NR4 Canadian form - equivalent to our 1099R.
Should it be handled as a non-standard 1099 (converting the amounts of distribution and tax withheld to USD) then reclaim the foreign tax via form 1098?
FBARs have been filed for the accounts.
I also receive Canada Pension and show it as foreign pension via Form FEC but there are no tax withholdings on that.
Thanks
Per IRS Pub 597 Publication 597 (Rev. October 2015) (irs.gov) the IRS treats RRSP and RRIF distributions as pension payments:
Pensions. A pension includes any payment under a pension or other retirement arrangement, Armed Forces retirement pay, war veterans pensions and allowances, and payments under a sickness, accident, or disability plan. It includes pensions paid by private employers and the government for services rendered.
Pensions also include payments from individual retirement arrangements (IRAs) in the United States, registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) in Canada.
Pensions do not include social security benefits.
So your RRIF income needs to be included on line 5 of your 1040, along with any 401(k) or other pension income that you may have. Depending on the tax software you are using, there may be interview questions specific to Canadian RRSP/RRIF income, or you may just need to use the information from your NR4 to answer 1099-R questions. You can use Form 1116 to claim the foreign tax credit on any withholding.
AJ
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Thanks AJ.
The IRS document seems to say that IRA payments are considered pensions also, but line 4 seems to cover that. Hence my confusion. The tax credit form error was just my lack of focus as that was what I had been last working on.
So, line 4 is for IRA distributions, line 5 is for pensions (including RRIFs but maybe IRAs,?) and line 6 is for SS.
Is a payment different from a distribution?
Yeah, I’m not sure why that IRS document refers to IRAs as pensions, since the IRS clearly differentiates between pensions and IRAs in many other instances, including giving IRAs one set of publications: Pubs 590-A 2021 Publication 590-A (irs.gov) and 590-B 2021 Publication 590-B (irs.gov) In the meantime, pensions and annuities get their own publications - Pub 575 2021 Publication 575 (irs.gov) and Pub 939 Publication 939 (Rev. December 2018) (irs.gov) It may have something to do with the fact that the statement comes from a publication about the tax treaty between Canada and the US, and when a Canadian resident is receiving US IRA distributions, the Canadian tax authority considers that as pension income - but that’s just speculation on my part.
If you put income from an IRA (including SEP and SIMPLE IRAs) documented on a 1099-R on line 5 of your 1040, you’re likely to get a letter from the IRS requesting additional taxes and penalties because you didn’t report the income from that 1099-R. That’s because the 1099-R has a checkbox next to Box 7 (distribution code) for noting that the income is from an IRA/SEP/SIMPLE:
Any time that box is checked, the IRS expects the income to show up on line 4. If it’s not checked, the expectation is that the income will show up on line 5. Since Social Security benefits have their own version (SSA-1099), the income from those forms is what’s put on line 6
It kind of depends on what you consider a ‘payment’ to be. To me, a ‘payment’ means that money is paid to the account owner - in your case, that would be the money got deposited into your Canadian checking account, but would not include any money withheld for taxes. The ‘distribution’ from the RRIF would include both the payment (made to you) and the withholding (sent to the Canadian tax authority).
AJ
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Thanks again AJ. I’ll treat it as a pension income.
In fact, the ‘income code’ on the NR4 is 26 for the gross amount, which maps to Periodic Payment. There is a separate box for the non-resident tax withheld.
Periodic Payment sounds like pension to me.
It sure helps having a place to get a second opinion when doing one’s own taxes.
Much appreciated.
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