Are you a Canadian “snowbird” spending winters in the United States? You may not realize it, but you could be considered a U.S. tax resident. If this is the case, the basis on which tax residency is determined is through the IRS “Substantial Presence Test.”
For this purpose, you will be considered a U.S. tax resident if you meet the following requirements:
Physically present in the United States at least 31 days in the current year, and
183 days during the 3 year period that includes the current year and the 2 years immediately before that.
If you fall into this category, don’t panic! There is potential relief available to Canadian citizens that are caught by this Substantial Presence Test:
You are present in the U.S. for fewer than 183 days in the current year.
You maintain a “tax home” in a foreign country during the year.
You have a “closer connection” to the foreign country where your “tax home” is than to the U.S.
Are there exceptions to the rule?
There are exceptions to the substantial presence test. The following are a few examples:
Days you are in the United States for less than 24 hours- when you are in transit between two places outside the United States.
Days you are in the United States as a crew member of a foreign vessel.
Days you can classify “exempt individual.”
The term “exempt individual” does not refer to someone exempt from U.S. taxes, but to anyone that claims exemption from counting days of presence in the United States. For example- a teacher or trainee temporarily in the United States under a “J” or “Q” visa, who substantially complies with the requirements of the visa. For a full list of exemptions and exceptions, please refer to the IRS substantial presence test.
What should you do next?
If you exclude days of presence in the United States because you fall under a special category, you must file Form 8840 (Closer Connection Statement) or Form 8843 (Statement of exempt individuals and individuals with a medical condition).
Freed Maxick International tax practice professionals can help you determine if you qualify as a U.S. tax resident, and assist you with Substantial Presence Test filings. We can navigate the IRS guidelines and minimize potential penalties. Contact us to connect with our experts.