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QUESTION:
I am an American citizen who has lived as a landed immigrant in Canada since 1968. I have never had to pay income tax to the United States before now because I have been able to take advantage of the earned income exclusion. I am now retired and earning only Canadian pension income and CPP. I have no US source of income.
My understanding of the alternative minimum tax is that it is supposed to catch those who have high incomes but pay minimal taxes.
I pay very high taxes on my pension income in Canada but it seems that no matter how much I have paid, there is no way to deduct enough of it to reduce my US US taxes to nil.
Is it the case that all US pensioners living in Canada making over $24,500 (US) are subject to US tax no matter how much tax they have paid in Canada? This seems grossly unfair.
More specific questions:
Is the concept of high-taxed passive income relevant?
I paid 1/3 of the cost of my pension and my employer paid 2/3. Can I take advantage of this using the Simple Rule?
My wife is a Canadian citizen who made only about $6,000 US in the year in question. Are there any disadvantages to filing a joint return with her?
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david ingram replies:
The alternative minimum tax has been a very unfair tax and is not working in the way it was designed.
You have discovered the conundrum that affects all Pensioners in Canada when their income exceeds the $25,000 US range and they are filing as married filing separately.
Understand that your Best choice is to file a joint tax return with your wife. That will double the amount you can exempt from Alternative Minimum Tax. Also, your CPP does not count toward the AMT. It is exempt from US tax under Article XVIII of the US Canada Income tax Convention (1980) with amending protocols in 1995/96/97. If your wife's income is CPP and OAC as i imagine it is, that is also exempt from US tax and exempt from the AMT.
You can also calculate your input into the pension and deduct that until you have returned your input.
Hope this helps.
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