It seems hard to believe that tax season is already upon us! This year, U.S. income taxes must be filed by April 15. If you’re one of the 21 million Canadians who had an extended stay in the U.S. last year, you may be subject to U.S. taxes.
How do I know if I will have to file U.S. taxes?
Conventional wisdom typically suggests that the IRS will leave you alone if you spend fewer than 183 days in the U.S. during a single calendar year. This is a common misconception! If you are present in the U.S. for 30 to 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. Still, 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 could be exempt – but failure to file the form could result in substantial fines.
What is the substantial presence test?
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’s definition of a “day” can be any part of a 24-hour period in which you are physically on U.S. soil, so even 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.).
How can I determine if I am considered a U.S. resident for tax purposes?
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 plus 1/3 of the days visited in the previous year plus 1/6 of the days visited in the year before that. Here’s an example: In 2013, you and your wife spent 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) plus 44 days (1/3 of 132 days in 2012) plus 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 Form 8840.
However, this does not automatically qualify you as a U.S. resident for tax purposes! 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 for tax purposes.
What if I spend less than 30 days in the U.S.?
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.
Issues of taxation are extremely complicated. If you think you might be required to file any forms with the U.S. IRS, you should contact a reputable tax attorney. If you have questions regarding living or working in the U.S. or U.S. income taxes, please schedule a consultation with one of our immigration attorneys today.