If you are one of the thousands of Canadians that flock south to Florida for the winter, you may be surprised to find out that the Internal Revenue Service (IRS) might consider you a U.S. citizen for tax purposes if you spend enough time there. This is true even if you are there on vacation and even if you do not earn any income from the U.S.
In determining your U.S. residency status for tax purposes, the IRS considers the total number of days you spend in the U.S. in any given calendar year. This includes any day you spend any amount of time there, even if it’s a few hours for a shopping trip or just a quick trip over the border to get cheap gas. And with recent agreements between the Canadian and U.S. governments, both border agencies share this information. So, keep a close eye on the number of days you spend in the U.S. over the year – because the government is too.
As a Canadian citizen and resident who spends more than a few weeks in the U.S. every year, you would fall into one of two categories in the eyes of the IRS: U.S. Resident Alien or U.S. Non-Resident Alien.
Assuming you don’t hold a U.S. green card, which would automatically make you a U.S. Resident Alien, you will be considered a U.S. Resident Alien if you spend more than 183 days in the current year in the U.S., OR at least 31 days in the current year in the U.S. and meet their “substantial presence test” which is described below.
You will be considered a U.S. Non-Resident Alien is you spend less than 31 days in the current year in the U.S., OR if you spend at least 31 days in the current year in the U.S. but you do not meet the substantial presence test.
The IRS uses a formula that looks a little scary on paper, but works like this. Add all of the days you spent in the U.S. in the current tax year, plus 1/3 of the days you spent in the U.S. last year, plus 1/6 of the days you spent in the U.S. in the year before. If this total equals at least 183 days, you are considered a U.S. Resident Alien for U.S. tax purposes in the current year.
Generally speaking, as a Non-Resident Alien, you would only have to file a U.S. tax return and pay U.S. income tax if you earned income in the U.S. However, as a Resident Alien, you may have to file a U.S. tax return and pay U.S. income tax on all of your worldwide income.
The good news is, even if you are deemed to be a U.S. Resident Alien, you may still qualify for relief from filing and paying tax in the U.S. in two ways by claiming a “closer connection exception” or a “treaty exemption”. For most Canadian snowbirds, the closer connection exception is the main course of relief since it applies to U.S. Resident Aliens who spent less than 183 days in the U.S. in the current year but met the substantial presence test (i.e. someone that spends 4-5 months in the U.S. every year).
If you spend 6 months or more in the U.S., or if you think you meet the substantial presence test, you should strongly consider consulting with a professional accountant who is familiar with Canada-U.S. tax laws to determine your U.S. residency status. There are stiff penalties that could potentially be levied by the IRS if you are considered a U.S. Resident Alien and do not file the necessary U.S. tax returns and/or exemption documents. And, again, both governments are keeping track of the number of days you spend in each country so it’s better not to wait for Uncle Sam to come knocking.
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*The blogs posted on this website provide information of a general nature and should not be considered specific advice. Please contact a professional accountant prior to acting upon or implementing any of the information included in the blogs.