My wife and I are retired Canadians moving to the United States. Must we pay U.S. tax on our Canadian pensions?

by James G. McGrory, CPA, and Stephanie K. Otake, CPA | Feb 15, 2019

My wife and I are retired Canadians and are moving to the United States later this year via green card to be near our daughter. We pay income tax to Canada on our Canadian pensions. Would we also pay tax to the U.S.?

The United States taxes U.S. persons on their worldwide income, which includes income earned from both U.S. sources and foreign sources. Citizens, lawful permanent residents (also known as green card holders), and other resident aliens of the United States are considered U.S. persons, and would be subject to U.S. taxation in this fashion. Since you and your wife will be U.S. green card holders, the Canadian pensions would also be taxable in the United States, unless there is an income tax treaty between the two countries that provides a rule to the contrary.  

You and your wife may be eligible for a foreign tax credit in the United States for the taxes you pay in Canada on the income also taxed in the U.S. This credit, which is subject to potential limitations, can be used to offset your U.S. tax liability attributable to the Canadian pensions. There are some complicated intricacies involved with the calculation of the foreign tax credit, so it would be beneficial to seek advice from a tax adviser.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: James G. McGrory, CPA, and Stephanie K. Otake, CPA, are with Drucker & Scaccetti in Philadelphia.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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