If you are a U.S. citizen or resident, the Internal Revenue Service (IRS) requires you to report all worldwide income. This includes income from dividends and interest from Canada. While not all your income may be included in a W-2 or 1099, the IRS advises that you are still responsible for reporting income earned from every source. To mitigate confusion and complexity resulting from living or working between the United States and Canada, both countries abide by the Canada-United States Convention with Respect to Taxes on Income and on Capital, otherwise known as the Canada-U.S. Tax Treaty.
Things You'll Need
- Canadian information slips
- IRS Schedule B
- Either IRS Form 1040 or 1040A
Collect your interest and dividend information slips from all Canadian sources. Canadian information slips will tell you how much income you received in dividends and interest during the year. In addition, information slips may also tell you how much tax is withheld on interest or dividend income. Nonresidents of Canada must pay a 10 percent tax on interest income. Likewise, dividends are subject to a 15 percent tax. However, the withholding is not always automatic. For example, if the accounts bearing interest or dividends are tied to a Canadian address you once occupied, you will not see the appropriate withholding on your information slips because the Canadian government or your financial institution may erroneously think you are a Canadian resident. Despite this potential misunderstanding, you are still responsible for paying the tax on income from Canadian interest and dividends. To provide relief from this double taxation, the IRS offers a tax credit on certain qualified taxes paid to a foreign government.
Complete IRS Schedule B for either your 1040 or 1040A. In sections 1 and 2 you may report all sources of interest and dividend income. According to the IRS, Schedule B may be used to report taxable Canadian interest and dividend income exceeding $1,500. In addition, you can also use Schedule B if you received interest from bonds and from interest received from a seller-financed mortgage.
File your income taxes. Complete your Form 1040 or 1040A and attach a copy of Schedule B to report interest and dividend income. Ensure that you file your return and pay outstanding tax by April 15 or the appropriate tax deadline. Filing and paying after this deadline may result in additional penalties and interest.