If a client gets W2 from in the US, it shows Income, Fed Income Tax Withheld, State security Tax withheld, and Medicare Tax withheld. How to calculate tax paid to report on T1 for foreign Income sheet?
By doing a 1040 (and State return) first…
I know that, but just wondering if we can calculate from W2? Is there any way to do this?
There is not. It must be the tax from the 1040 and state return if any plus the social security and medicare tax withheld on the W2. It also must be prorated amongst the various income on the 1040 - you can’t just claim all the tax. The CRA reviewer who checks the FTC’s will change it all around if you do it wrong - which makes you look bad to the client since you don’t know how to calculate it. Don’t forget if you have any 401k deductions noted on the W2 those must be added back into income on the Canadian return.
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And if the CRA requests proof of foreign tax paid the 1040 or 1040NR are not acceptable proof of taxes paid. The client needs to apply for a Federal (IRS) transcript (similar to our Notice of Assessment) and possibly a state transcript too if they were assessed state tax. The IRS doesn’t generally send out assessments or transcripts if everything is fine with the filing.
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