On February 7, 2017, a bill was presented to Congress proposing that Canadians over age 55 can stay in the U.S. up to eight months each year without having to file U.S. taxes. But until that bill passes, it’s critical to keep track of how many days you’re stateside. Overstay your welcome and you may need to complete a U.S. tax return — leaving you subject to U.S. tax on your worldwide income.
The ‘substantial presence’ test
The Internal Revenue Service (IRS) determines U.S. residency for income tax purposes using the two-part “substantial presence” test.
Part One is based on time spent in the U.S. in the current year. If it’s 31 days or more, proceed to Part Two.
For Part Two, start with the number of days you spent in the U.S. this calendar year, add one-third of the days spent in the U.S. last year, and then add one-sixth of the days of the year before that. If the total is 183 days or more, you’re required to file a U.S. return.
How to claim an exemption
If you spent 182 days or less in the U.S. in the current year and can demonstrate that you have a closer connection to Canada, you may qualify for an exemption. Factors that help prove a closer connection include where you are registered to vote, where your family lives, and so on. File U.S. Form 8840 to claim the exemption.
If you spent more than 182 days stateside in the current year, you can apply for an exemption under the United StatesCanada U.S. Income Tax Treaty.
Staying on top of changing regulations like these is all just part of the value-added service we think our clients deserve.
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