USA Foreign Tax Credits and Self-employment tax

[taxesanddeath]

Say I made 175k USD in 2020. I was a resident of Canada for Q1, and a US resident for the rest of the year. Im a dual citizen.

I earned 25k USD while a resident of Canada (Q1 2020) and paid Canadian income taxes on this 25k. I will claim this on Form 1116 for a FTC (foreign tax credit).

Question:

On this 25K USD Canadian sourced income I also paid CPP (Canadian Social Security). FTC doesnt cover self-employment tax. Would I be able to deduct the CPP paid on this 25K against the self-employment tax owed? Normally I would write "EXEMPT" on Form 1040 (Schedule 2) line 4 "Self-employment tax" as Canadian-US have a Totalization Agreement.

 

[Dave In Capital]

A certificate of coverage issued by one country serves as proof of exemption from Social Security taxes on the same earnings in the other country. Generally, you will need a certificate only if you will be working in the other country for more than 183 days in a calendar year. If you will be in the other country for 183 days or less, a certificate will not be needed unless the other country requests that you obtain one.

Totalization Agreement with Canada | International Programs | SSA

This page provides information on how to avoid dual U.S. and Canadian Social Security taxes, as well as how to apply for benefits under the U.S. social security Agreement with Canada.

www.ssa.gov

 

[taxesanddeath]

So if I am understanding correct, I can exempt myself from social security on the Canadian sourced income in Q1?

The same income I will deduct from my SE calculation and include an explanation with the proof of exemption.

 

[Dave In Capital]

I would include in the explanation that the applicable period is (365*.25=90) <183 days, thereby exempting you from needing to furnish a certificate.