Every taxpayer with US filing obligations, whether in the form of a tax return, a declaration of estimated tax payment or an informational disclosure, must be identified by a taxpayer’s identification number. Typically, such identification number is an individual’s social security number. If an individual is not eligible for a social security number, he or she can apply for an individual taxpayer identification number ITIN.
Married Canadians who are subject to U.S. Taxes on their U.S. earnings may benefit from a nondiscrimination clause in the treaty. The clause is designed to benefit only those Canadians who are not U.S. citizens and whose U.S. income is entirely, or almost entirely, from work as an employee. Many Canadians who live in Canada and commute to work in the United States many benefit.
To take advantage of this provisions:
– Prepare Form 1040NR as usual;
– Prepare and attach to Form 1040NR a statement that shows your computation of the tax limitations; and
– Enter on the income tax line of Form 1040NR the tax computed as usual or the tax limitation, whichever is less.
Computations of tax limitation:
1. Use Form 1040, pages 1 and 2 marked “Statement,” to compute the U.S. income tax that would be due if you and your spouse were U.S. citizens filing a joint return; that is, the tax on your worldwide income that would be entered on line 39, Form 1040. A loss realized by your spouse cannot be taken into account in computing taxable income, however.
2. Use the following formula to compute the tax limitation on wage income:
Tax from line 40, Form 1040 x taxable income from Form 1040NR / taxable income from line 39, Form 1040.
3. On Form 1040NR, enter the tax computed as usual or the tax limitation, whichever is less, plus the tax on effectively connected income other than wages (such as rental income from U.S. property). Then, compute and enter any other taxes and complete the return.