Canadians in the US: How the IRS Views Your Stay
If you are a Canadian resident who is planning to spend an extended period of time in the United States you should be aware of the IRS tax regulations that may effect you. Perhaps you have just purchased a US residence in the Sun Belt and plan to become a snowbird or perhaps you plan to enjoy a long vacation in the US or an extended visit with a relative.
Non-residents who spend extended periods of time in the US can be deemed to have a substantial presence in the US and may be taxed by the IRS as US residents, subject to US taxes on their worldwide earnings. Basically, it is felt that anyone enjoying the comforts and benefits provided by the United States for an extended period of time has an obligation to contribute to the support of those amenities.
The Substantial Presence Test
The IRS considers non-residents to be U.S. residents for tax purposes if they meet the substantial presence test. A non-resident who was physically present in the United States for a total of 183 days during a calendar year clearly meets this test and will be taxed as a US resident. You may only consider yourself to be a Canadian in the us temporarily but in all things taxes, the IRS gets the final say while you are in the states.
A non-resident Canadian who has spent more than thirty days in the United States during a calendar year will be deemed to have a substantial presence in the US if the sum of the following calculation of the cumulative number of days spent in the US over a three-year period equals 183 or more:
- The number of days spent in the US during the current year, plus
- One third the number of days spent in the US during the previous year, plus
- One sixth of the number of days spent in the US the year before that
The IRS considers you to be present in the United States on any day that you are physically present in the country at any time during the day.
For purposes of the substantial presence test the IRS does not include the following:
- Days a non-resident regularly commuted to work in the United States from a residence in Canada or Mexico.
- Days a non-resident was in the United States for less than 24 hours while traveling between two places outside the United States.
- Days a non resident was temporarily in the United States as a crew member of a foreign vessel engaged in transportation between the United States and a foreign country.
- Days a non-resident was unable to leave the United States due to a medical condition or medical problem that arose while in the United States.
- Days a non-resident was an exempt individual.
Non-residents who may otherwise be entitled to exclude days present in the United States for purposes of the substantial presence test must include any days when they engaged in trade or business.
The following individuals are considered to be exempt individuals by the IRS:
- Foreign government-related individuals
- Teachers or trainees
- Students
- Professional athletes competing in charitable sports events.
Non-residents, who are not foreign government-related individuals, qualifying as exempt individuals to exclude days of presence in the United States from the substantial presence test must file Form 8843, (Statement for Exempt Individuals and Individuals With a Medical Condition).
The IRS also requires non-residents who qualify to exclude days of presence in the United States due to a medical condition problem to file Form 8843
Closer Connection Exception
Non-residents that otherwise meet the substantial presence test may be exempt from being taxed as a U.S. resident if they are granted an exemption by reason of having a closer connection to another country. This subject will be covered in more detail in a separate article.
If you intend to remain in the United States for an extended period of time the cross border tax specialists at Aylett Grant can help ensure that you avoid potential tax problems that may arise from not fully understanding tax implications of prolonged stays in the US.
Our international tax experts will assist you to file the necessary forms to obtain any exemptions you may be entitled to prior to your departure from Canada.