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.
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 eligible individuals who did not anticipate meeting 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:
- If you have a U.S. source income, you still need to file U.S. Income tax returns.
- If you earned any income during the period mentioned above in the U.S. you cannot claim this exception.
- This exception does not change the Closer connection exception.
- This exception is for U.S. income tax requirements only and does not affect any immigration-related matters.
- 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 the U.S. Income tax and Canada’s U.S. income tax treaty, the readers should seek professional tax help.