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COVID-19 Exception: Substantial Presence Test (U.S.)

COVID-19 Exception: Substantial Presence Test (U.S.)

COVID-19 Exception: Substantial Presence Test (U.S.)

Covid-19 relief for Canadians who did not anticipate meeting the substantial presence test but stuck in the U.S.

As we are in the final quarter of 2020, many wonder if they are subject to U.S. Income taxes due to the travel restrictions earlier in the year!

Good News: Yes, there is an exception available!

Generally, if you meet the substantial presence test (SPT), you are subject to U.S. income tax filing requirements. May Canadians spend a significant portion of the year in the U.S. especially in winter. Such Canadians are often called snowbirds. When a snowbird meets the substantial presence test, (s)he can file Form 8840 to claim a Close connection exception for Aliens. 

What is a substantial presence test? and how does it affect Canadians who spend time in the U.S.? Read here.

COVID-19 and U.S. Tax Residency Exception

The pandemic had resulted in travel restrictions. As a result lot of aliens, including, snowbirds got stranded in the United States. The Internal Revenue Service issued relief for such aliens by issuing Revenue Procedure 2020-20. Revenue Procedure (RP) 2020-20 provides relief for the eligible individuals who did not anticipate to meet the substantial presence test.

RP 2020-20 simply treats Covid-19 related travel disruptions as a medical emergency. Under the relief, an eligible individual can exclude a “single” period of up to 60 consecutive days. Such a period must start on or after February 01, 2020, and on or before April 1, 2020.

An individual can claim this exception by filing Form 8843, i.e. Statement for Exempt Individuals and Individuals with Medical Condition.

Candian snowbirds are generally not required to file form 8833, they need to file form 8840.

Other important things to note are:

  1. If you have the U.S. source income, you still need to file the U.S. Income tax returns.
  2. If you earned any income during the period mentioned above in the U.S. you cannot claim this exception.
  3. This exception does not change the Closer connection exception.
  4. This exception is for U.S. income tax requirements only and does not affect any immigration-related matters.
  5. You must know that the statute of limitations starts only after you file the relevant forms.

Cross Border Tax Help for Canadians

If you are a Canadian individual or a business, Maroof HS CPA Professional Corporation can help with your cross border tax issues. Get in touch with us!  We are conveniently located in Vaughan and Toronto serving our client across Ontario and Alberta.

The above post is for information purposes only. Due to the complex nature of U.S. Income tax and Canada U.S. income tax treaty, the readers should seek professional tax help.

Maroof Hussain Sabri

Maroof Hussain Sabri

Maroof is a CPA, CA in the province of Ontario and Alberta in Canada. He is also a licensed CPA from North Dakota in the United States. He lives in Toronto.

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