U.S. Immigration and Tax Consequences (Part 1 of 4)
Since we are approximately one month away from the April 15th deadline to file your taxes, Berardi Immigration Law will be addressing four (4) common issues and concerns that arise with U.S. immigration and tax consequences. Today, our first part will focus on the U.S. Tax Implications for Canadian Snowbirds.
***Please note: The purpose of this series is to provide general information on immigration tax issues commonly raised by our Canadian clients. Berardi Immigration Law does not practice U.S. tax law. Any information herein is for general informational purposes only and not for the purpose of providing legal or tax advice. To ensure compliance with U.S. tax regulations, you should speak with your tax or financial adviser to assist you in all financial implications for your time spent in the U.S.***
Dear Berardi Immigration Law,
Each winter, my wife and I head south to Florida to escape the cold weather for 4-6 months. Does this make me a U.S. resident? Sunshine, golf, the beach and retirement relaxation are my primary concerns, but what are the tax consequences of my extended winter vacation?
Yours truly, Canadian Snowbird
Conventional wisdom typically suggests that the IRS will leave you alone if you spend fewer than 183 days in the U.S in a single calendar year. This is a common misconception. If you are present in the U.S. for 30-183 days in a single calendar year, you meet the criteria for having a “substantial presence” in the U.S. You must file Form 8840 Closer Connection Exception Statement for Aliens with the U.S. IRS. This does not necessarily mean you will be treated as a U.S. resident – if you can establish that you maintain a “closer connection” to a foreign country, you’ll probably be exempt – but failure to file the form could result in substantial fines.
The IRS’s “substantial presence test” is somewhat complicated, and it is essential that you count the exact number of days you spend in the U.S. per calendar year. The IRS’ definition of a “day” can be any part of a 24-hour period in which you are physically on U.S. soil – so a few hours of shopping in the U.S. counts as a full day in your calculation. Certain exceptions do apply, such as your regular commute to work, a quick layover while in transit between two other countries, or if you are an exempt visitor (teacher or trainee, Canadian government worker, student, etc.).
To determine if your “substantial presence” renders you a U.S. resident, calculate the following: Add the total number of days visited during the current calendar year +1/3 of the days visited in the previous year + 1/6 of the days visited in the year before that.
Here’s an example: In 2013, you and your wife spend a total of 120 days in the U.S.; in 2012, you spent 132 days; and in 2010, you spent 126 days. You would add 120 days (in 2013) + 44 days (1/3 of 132 days in 2012) + 21 days (1/6 of 126 days in 2011) for a total of 185 days. Since this is more than the 183-day margin, you qualify as having a “substantial presence” in the U.S. and must file a Form 8840. However, this does NOT automatically qualify you as a U.S. resident! If you can establish your “closer connection” to Canada, such as a home, bank account, close family, business activities, a local voting record, etc., you can avoid being considered a U.S. resident.
Canadians who visit the U.S. for less than 30 days in a calendar year are considered simple visitors and do not have to worry about any tax implications. A Canadian who stays more than 183 days in a single calendar year will be considered a “U.S. resident alien” for tax purposes and must file a regular U.S. tax return.
If you have any doubts about your “substantial presence,” contact our Immigration Attorneys today and avoid a potential tax nightmare.