Us Pensions: New Brunswick Tax Rules

New Brunswick has a range of pension plans for its residents, some of which are operated by the Canadian government, while others are provided by employers. The New Brunswick Financial and Consumer Services Commission (FCNB) is responsible for enforcing the Pension Benefits Act, which sets minimum standards for pension plans registered in the province.

The Canada Pension Plan (CPP) is a federal government program that almost all workers in Canada contribute to. It provides contributors and their families with partial earnings replacement in the event of retirement, disability, or death. The Old Age Security (OAS) program is another federal pension program that provides a monthly payment to Canadians aged 65 and over who meet residence and status requirements.

When it comes to US pensions, the taxation depends on residency. If a US citizen or green card holder is a resident of Canada, their US pension benefits are only taxable in Canada and not in the US. On the other hand, if a US resident receives Canadian pension benefits, they are treated as US social security payments for tax purposes and are only taxed in the US.

US social security payments

If you're a US citizen or green card holder residing in Canada, your US social security payments are only taxable in Canada and not in the US. US social security payments are considered retirement benefits and are treated as US social security payments for tax purposes.

The Canada Revenue Agency (CRA) requires US citizens or green card holders to report their US social security payments on their Canadian taxes. These payments should be reported on Form 1040 or 1040A, depending on which form you are filing. You should enter this income on the line where US social security benefits are reported.

It is important to note that the CRA considers pension income to be non-eligible for the Canada Employment Amount tax credit. Additionally, the CRA treats US social security payments as regular income for tax purposes, which means that they are taxable in Canada.

In terms of the tax rates in New Brunswick, they range from 9.4% to 19.5% of income, and the combined federal and provincial tax rate is between 24.4% and 52.5%. The tax you pay depends on your income level and the corresponding tax bracket.

It is always recommended to consult with a tax professional or the CRA directly for specific guidance on your tax situation.

Tax treatment for US citizens in Canada

US citizens living in Canada will need to consider the tax implications of their retirement plans. Both Canada and the US have their own public retirement programs, and it's important to understand how these interact.

The Canadian public retirement program includes Old Age Security Benefits and the Canadian Pension Plan. Old Age Security is a modest monthly payment available to most Canadians aged 65 and over. It is funded by general revenues of the Government of Canada, and individuals do not pay directly into it. To be eligible, you must meet the residence and status requirements, and have lived in Canada for at least 20 years since turning 18. If you move out of Canada, you can still receive Old Age Security if you meet these requirements or if you have resided in a country with a social security agreement with Canada.

The Canadian Pension Plan, on the other hand, is a monthly retirement pension that individuals must pay into to receive benefits. It also offers disability insurance and survivor and death benefits.

Now, how does the US tax these Canadian pension plans? According to the IRS, if you are a resident of the United States, these retirement benefits are treated as US social security payments for tax purposes and are only taxed in the US. However, if you are a US citizen or green card holder residing in Canada, the benefits are only taxable in Canada, with no taxes due in the US.

When it comes to reporting these pension plans on your US taxes, you should do so on Form 1040 or 1040A, entering the income on the line for US social security benefits.

In addition to the federal income tax, New Brunswick also has its own income tax, with tax rates ranging from 9.4% to 19.5% in 2023. The amount of tax deducted from your paycheque will depend on where you fall within the federal and provincial tax brackets.

It's important to note that as a US citizen living in Canada, you may have additional considerations when it comes to retirement planning and tax payments. Consulting with a tax professional can help you navigate these complexities and make informed decisions about your financial future.

Reporting Canadian pensions on US tax returns

If you are a US citizen or permanent resident receiving Canadian pension benefits, you must report them on your US tax returns. This includes pensions from the Canada Pension Plan (CPP), Old Age Security (OAS), and the Quebec Pension Plan (QPP). These benefits are treated as US social security payments for tax purposes and are only taxable in the US.

Which Forms to Use

To report your Canadian pension income, you will need to use Form 1040 or 1040A, depending on which form you are filing. Enter this income on the line where US social security benefits are reported.

Tax Treaties

It's important to note that the US and Canada have a tax treaty in place, which may impact how your Canadian pension is taxed. According to this treaty, if you are a US citizen or green card holder residing in Canada, your Canadian pension will only be taxable in Canada. However, if you are a US citizen or green card holder residing in the US, your Canadian pension will only be taxable in the US.

Foreign Tax Credit

If you have paid foreign taxes on your Canadian pension, you may be able to claim a foreign tax credit on your US tax return. This credit can help reduce the amount of tax you owe to the US.

Lump-Sum Payments

In some cases, you may receive a lump-sum payment from your Canadian pension. If this payment is made to a non-resident of the US, it will typically attract a 15% US withholding tax. However, for US citizens and green card holders, the taxable portion will be taxed at regular rates on your 1040 return.

Social Security Payments

It's important to distinguish between Canadian pension plans and social security payments. While Canadian pension plans are taxed based on your residency, social security payments are only taxable in your country of residence. So, if you are a US citizen living in Canada and receiving US social security payments, these payments will be taxable only in Canada.

Pension Splitting

If you are receiving Canadian pension benefits, you may be able to split the payments with your spouse or common-law partner when filing your taxes. To do this, you must complete Form T1032, Joint Election to Split Pension Income.

Reporting Foreign Income

When reporting your Canadian pension income on your US tax return, remember to report the gross amount in Canadian dollars. You can use the Bank of Canada exchange rate to convert the amount into Canadian dollars if needed.

Reporting your Canadian pension on your US tax returns can be a complex process, and it's always recommended to consult with a tax professional to ensure you are complying with all the relevant laws and regulations.

US expat retirement planning

Retirement planning for US expats can be complex, and it's important to be aware of the potential pitfalls. Here are some key considerations for US expats planning their retirement:

• Tax implications: The US has tax treaties with many countries, which can help determine whether retirement account income is taxed in the US or the country of residence. It's important to understand the tax laws in both the US and the country of residence to avoid double taxation.
• Retirement accounts: 401(k) and IRA accounts are common retirement vehicles in the US, but there may be limitations and restrictions on managing these accounts from abroad. It's generally possible to maintain and manage these accounts remotely, but there may be tax implications and reporting requirements.
• Foreign retirement plans: The country of residence may offer foreign retirement plans, such as pension or provident funds, which allow expats to contribute. It's crucial to understand the rules and regulations around these plans, as they may impact retirement savings.
• Double taxation: This is a key concern for US expats, as retirement account income may be taxed in both the US and the country of residence. To mitigate this risk, expats can consider tax treaties, the foreign earned income exclusion, and foreign tax credits.
• Currency risk: If a US expat's retirement account is held in US dollars, there is a risk of currency devaluation relative to the local currency, resulting in a decline in the value of the account.
• Reporting requirements: US expats participating in foreign pension plans must report these plans on their US tax returns. This can be a time-consuming and expensive process, and may require additional forms such as the Foreign Bank Account Report (FBAR) or Form 3520.
• Social Security benefits: Social Security payments will continue for US citizens and residents who choose to live in other countries. However, these benefits may be taxed as income by the US and the country of residence.
• Healthcare considerations: Medicare will not follow US expats outside of the country if they choose to live abroad long-term. Healthcare costs and access should be carefully considered when planning for retirement abroad.
• Early planning: It's important to start retirement planning early, especially for expats who may face additional complexities. Seeking advice from financial experts who understand the relevant tax laws and regulations can help ensure a comfortable and secure retirement.

New Brunswick tax brackets

New Brunswick's personal income tax is collected by the federal government through the Canada Revenue Agency. The tax rates in New Brunswick range from 9.4% to 19.5% of income, and the combined federal and provincial tax rate is between 24.4% and 52.5%. The marginal tax rate increases as your income increases, meaning you pay higher taxes on the level of income that falls into a higher tax bracket.

| Income | Federal Tax Rate | New Brunswick Tax Rate |

|---|---|---|

| over $47,715 - $95,431 | 15% | 9.4% |

| over $95,431 - $176,756 | 20.5% | 14% |

| over $176,756 - $185,064 | 25.75% | 16% |

| over $185,064 - $246,752 | 29.5% | 17.84% |

| over $246,752 | 33% | 20.3% |

The amount of tax your employer deducts from your paycheck depends on where you fall inside the federal and New Brunswick tax brackets. The amount of income tax that was deducted from your paycheck appears in Box 22 of your T4 slip.

Frequently asked questions