US citizens residing in Canada are not taxable on their US social security for US tax purposes in accordance with Article XVIII of the Canada/U.S. tax treaty. The country of residence taxes the other countries social security payments to 85%. Likewise CPP or OAS from Canada is excluded on the US 1040 if you reside in the US. If the particular social security payment is included in a country’s tax return, generally the maximum income inclusion is 85% to the taxable income computation.
The foregoing also applies to part-year residents which would require using these concepts.
Many returns are incorrectly prepared not recognizing this treaty provision generally resulting is additional tax paid more so for those in higher marginal tax bracket due to significant other sources of income subject to tax.
Such errors can be amended by preparing a US1040X return or in the case of Canada a T1 adjustment. Supporting schedules need to be prepared to support an adjustment.
Original Post By: Larry Stolberg