CPP and OAS on a US Tax Return: How Much Is Taxable

Is CPP and OAS taxable in the USA?

Yes, in the US and only there. Article XVIII(5) of the Canada–US tax treaty says benefits under Canada's social security legislation paid to a US resident are taxable only in the US, and the US taxes them as though they were US social security. IRS Publication 915 applies that rule: Canadian benefits go on line 1 of the social security worksheet.

What makes a case not simple: a move partway through the year (two countries tax different months), Canadian tax withheld after the move, a back payment covering earlier years, an RRSP, RRIF or workplace pension in the same year (different rules), or a state return.

What to gather: every NR4 slip for the year, any SSA-1099 for US benefits, Service Canada letters for back payments or changes, your move date, and your other income for the year.

Why was tax withheld from my CPP or OAS after I moved, and how do I fix it?

Service Canada's rate for a US resident is 0%, so tax taken after your move needs explaining. First see which slip shows it: non-resident tax appears on an NR4; tax taken as if you still lived in Canada appears on a Canadian benefit slip and is dealt with on your Canadian return for the year you left. Canada's default non-resident rate is 25% unless a treaty lowers it, and a treaty country resident does not need to ask for the reduction (Service Canada).

1. Contact the office that pays the benefit to confirm your US address and country of residence, so future payments are paid at the treaty rate. For tax questions, Service Canada sends you to the CRA (Service Canada).
2. Check the slip for the withheld tax. Non-resident tax on an NR4 slip that was more than the treaty allows is claimed back on Form NR7-R. The CRA must receive it within two years of the end of the calendar year the tax was sent to the CRA (CRA).
3. If the tax was taken while you were still treated as a Canadian resident, or covers months before the move, ask the CRA which route applies; it may belong on your Canadian return for the year you left.

Canadian tax above what the treaty allows is generally not a US foreign tax credit; recover it from Canada (which Canadian tax you can claim on a US return). For what each NR4 box means, see the NR4 slip guide.

Do I file the OAS Return of Income from the US?

No, for any year you meet the CRA's three conditions: you lived in a listed country at the end of the year (the United States is listed), you received OAS that year, and you do not plan to move before July 1 of the second year after that tax year to a country that is not on the list (CRA). Recovery tax and Section 217 returns for people living in other countries are covered in the non-resident pension and RRSP return guide.

How does the IRS tax CPP, QPP and OAS?

As if they were US social security. Add half of all benefits, Canadian and US together, to your other income, including tax-exempt interest. If that total is above your base amount, part of the benefits is taxable (Publication 915).

Below the upper line, generally up to 50% of benefits can be taxable. These amounts come from the law, not inflation tables, so they do not change by year. A joint return combines both spouses' incomes and benefits.

Two traps: treating Canadian benefits as a fully taxable foreign pension, and leaving them out because no SSA-1099 came.

Nothing is withheld for the IRS on Canadian benefits: Canada takes 0%, and Form W-4V withholding is for US benefits. If the taxable part adds to your tax, you may need to ask for more withholding from other income or pay estimated tax during the year (Publication 915).

Where does CPP or OAS go on Form 1040 with no SSA-1099?

On the same lines as US social security. Enter the US-dollar total of all benefits on line 1 of the worksheet, the total on line 6a and the taxable part from the worksheet on line 6b. If you are married filing separately and lived apart from your spouse all year, check the box on line 6d (Form 1040 instructions; Publication 915). Your NR4 slips are the record of what Canada paid; keep them with your return.

If you contributed to a traditional IRA and you or your spouse were covered by a retirement plan at work or through self-employment, the Form 1040 instructions send you to Publication 590-A's worksheets instead.

Which exchange rate turns the benefit into US dollars?

The IRS has no official rate. It says to translate income at the rate prevailing when you receive it, and it accepts any posted rate used consistently (IRS; IRS yearly rates). For equal monthly payments, its yearly average rate is the simple choice: divide the Canadian-dollar total by the rate for the year you are reporting (1.398 for the latest year in the table). Use the same method every year.

Are CPP or QPP disability and survivor benefits treated the same?

Yes, as a rule. Publication 915 says social security benefits include monthly retirement, survivor and disability benefits, and the treaty puts Canadian benefits on the same footing. One treaty exception: a type of Canadian benefit that Canada does not tax when paid to its own residents is exempt from US tax (Article XVIII(5)(b)). If you are unsure how Canada taxes a benefit, get cross-border tax help before leaving it off.

A children's benefit is the child's income, even when it is paid to you. Leave it off your worksheet; Publication 915 explains how to check whether any of it is taxable to the child.

A CPP back payment covers earlier years: can I use the lump-sum election?

Possibly. A back payment is taxed in the year you receive it, but Publication 915 lets you refigure the part that belongs to an earlier year using that year's income, if this lowers the taxable amount, by checking the box on line 6c. Publication 915 treats Canadian benefits as US social security but does not say whether the election covers a Canadian back payment, and its worksheets are written around Form SSA-1099. Confirm before relying on it, and keep the payer's letter showing which months the payment covers.

Does my state tax CPP and OAS?

Check your state. The treaty covers federal income tax imposed by the Internal Revenue Code (Article II), not state tax. A state's own exclusion for social security may be written around US benefits only, so read your state's instructions or ask its tax department whether Canadian benefits qualify. States without a personal income tax do not tax these benefits; see which US state to move to from Canada.

How is this different from my RRSP, RRIF or workplace pension?

Those are pensions under the treaty, and Publication 597 says pensions do not include social security benefits (IRS). Canada may tax periodic pension payments to a US resident at up to 15%, the US taxes them as pension income, and a foreign tax credit may offset the Canadian tax. See RRSP and TFSA after leaving Canada and foreign income on a US return.

Example

These examples are illustrative, with round numbers. Amounts are in the currency stated.

A retired couple in Arizona

Each spouse receives CPP of C$12,000 and OAS of C$9,000 a year, C$42,000 together. Canada withholds nothing. At an illustrative 1.40 Canadian dollars per US dollar, that is US$30,000. With US$20,000 of US social security, total benefits are US$50,000 (line 6a). Half is US$25,000; with US$15,000 of other income the total is US$40,000, which is US$8,000 above the joint base amount. Half of that, US$4,000, goes on line 6b, since the total stays under the upper joint threshold. No OAS Return of Income is due. Whether Arizona's exclusion for social security reaches the Canadian part is a state question (see the state section above).

A widow in Florida

She receives a CPP survivor benefit of C$6,000 and her own US social security. Both go on one worksheet, in US dollars. Her NR4 is her record of the Canadian amount. She does not file an OAS Return of Income.

A move to Washington State in June

A man receives OAS of C$700 a month and moves on June 15. Payments he received before the move go on his Canadian return for the year he left. Payments after he becomes a US resident go on his US return through the worksheet, and Service Canada should have his US address so later payments are at the treaty rate. Which US return a part-year resident files, and when the US year starts, is in dual-status return in the year you move to the US.

Different for you?

• You moved this year, or Canada withheld tax after you moved: two countries share the year; see dual-status return in the year you move and get cross-border tax help.
• You also draw an RRSP, RRIF or Canadian workplace pension: different treaty rules apply; see RRSP and TFSA after leaving Canada and get cross-border tax help.
• You left Canadian benefits off past US returns: the fix involves amended returns; get cross-border tax help.
• Your state taxes income and you are unsure Canadian benefits qualify for its social security exclusion: get cross-border tax help.
• You live in Canada and get US social security: see Americans living in Canada.
• You need US and Canadian credits combined to qualify: see Service Canada's Canada–US social security agreement page and totalization and self-employment tax.
• You live in a country other than the US: see non-resident returns for pension and RRSP income and retiring abroad from Canada.
• You have other foreign pensions: see foreign income on a US return.