All US citizens, regardless of residential status, are required to submit a tax return to the IRS. US Citizens who are Canadian nonresidents and are employed by a Canadian employer will receive either Form T4 or T4A-NR, the equivalent of Form W-2 issued in the United States. The mailing deadline for employers is the last day of February.
For Form T4, report Box 14 as foreign employer compensation.
For Form T4A-NR, there are two important amounts to report:
- Box 18 Gross income - report as foreign employer compensation.
- Box 20 Travel expenses - if more was reimbursed than what was expended, report the difference as Other Income.
The amount of income tax due to Revenue Canada is a third important amount to report on Form 1040, but note that this amount is determined by completing Revenue Canada Form T1, Income Tax and Benefit Return. The amount in Forms T4 or T4A-NR Box 22, Income tax deducted, reflects only what was withheld from wages.
Any amount entered in the tax return needs to be converted to US Dollars using a yearly average currency exchange rate or using multiple exchange rates if doing so better fits the facts and circumstances. See here for more information about currency exchange rates.
To enter Form T4 or T4A-NR in TaxSlayer ProWeb, from the Federal Section of the tax return (Form1040) select:
- Less Common Income
- Other Compensation
- Foreign Earned Compensation - If filing MFJ, select whose income this is.
- Foreign Employer ID - Optional (Form T4 Box 54 or T4A-NR "Payer's account number").
- Foreign Employer Name - Required.
- If the work was done in the US, check the box indicating that, otherwise select Canada from the dropdown menu.
- Foreign Compensation - Enter the amount of "Employment income" (Form T4) or "Gross income" (Form T4A-NR), converted to US dollars.
- Foreign Employer Address - Required.
- Employee Address - Required.
At this point the taxpayer has three possible options to avoid double taxation:
- Include taxes paid on Schedule A if itemizing.
- Claim an income exclusion using Form 2555 Foreign Earned Income, assuming they meet all the requirements.
- Claim a tax credit on Form 1116 Foreign Tax Credit.
The IRS suggests trying each option to determine which yields the greatest tax savings.
- Until the taxpayer has filed their income tax return in the country where the income was sourced and received notification of acceptance, actual taxes paid to the foreign country are considered accrued.
- Taxpayers may NOT claim both a deduction for taxes paid and a tax credit for same income.
- High wage-earners may be able to utilize both Form 2555 and Form 1116 but cannot enter the same income on both forms.
Note: This is a guide on entering Revenue Canada Forms T4 and T4A-NR into the TaxSlayer ProWeb program. This is not intended as tax advice.