I have several clients that have form RRB-1042S from the US for pension income from the US Railroad Retirement Board. They receive two separate 1042S slips with two different income codes. The first code is 98 which says the income represents social security equivalent benefit payments. The other code is 99 which is the pension payments.
My question is for the income on the slip with the income code 98. Would this still be foreign pension income, or would it qualify as US Social Security benefits at all (which gets a 15% exemption)?
As it’s over a 2 hour wait to talk to CRA, I’m hoping someone here has come across these slips or has had experience with the social security equivalent benefit payments.
Railroad Retirement benefits are higher than social security benefits since the contribution rates are higher. My understanding is that code 98 on the Railroad Board 1042S represents the portion of Tier 1 benefits considered to be “social security benefits”.
Article XVIII of the United States Canada Tax Convention deals with pension income and more specifically paragraph 5 discusses social security and railroad retirement benefits. 15% of the Tier 1 benefits paid from the the railroad retirement pension are exempt from Canadian tax.
Benefits under the social security legislation in a Contracting State (including tier 1 railroad retirement benefits but not including unemployment benefits) paid to a resident of the other Contracting State shall be taxable only in that other State, subject to the following conditions:
(a) a benefit under the social security legislation in the United States paid to a resident of Canada shall be taxable in Canada as though it were a benefit under the Canada Pension Plan, except that 15 per cent of the amount of the benefit shall be exempt from Canadian tax;
The US Social Security equivalent would appear as US Social Security on the US return so yes it is correct to record as US Social Security on the Cdn T1