US Taxes for Canadian Snowbirds

What is a Snowbird?

If you are a Canadian and spend winter in U.S. you may, unknowingly, become a US resident under the tax laws of United States. So, now you are tax resident of both Canada and US. Snowbirds are the Canadians spending their winters in United States.

When you spend winters every year for a prolonged period of time in United States you may meet substantial presence test.

As per US Tax Code if an individual meets substantial presence test he or she is subject to U.S. tax on his/her worldwide income. Not a situation snowbird would love! But if you meet a substantial presence test but you have a “closer connection” to another country you would not be considered a US resident for tax purposes.

Substantial Presence Test

A common misconception is that spending up to 182 days each year in US will have no US tax effect on a Canadian. This is not correct!

You will meet Substantial Presence Test if you spend at least 31 days in current year “and” if the result of below formula is equal to or more than 183 days.

(Total no. of days you have spent in US in current year) PLUS (No. of days spent in previous year divided by three) PLUS (No. of days spent in previous-to-previous year divided by 6)

SPT = [(CY days)] + (CY-1 days x 1/3) + (CY-2 days x 1/6)

If the result of this formula is equal to or more than 183 days, you have met the substantial presence test. This is important to mention that certain number of days spent in US are not considered while calculating the Substantial presence test; days spent unintended due to a medical emergency, days used to commute to work in the United states, less than 24 hours spent while transiting through United States and days spent by certain students in the United States.

Closer Connection Exception for Aliens

If you have a closer connection to another country for tax purposes, you can avoid the US tax consequences by filing the form 8840 with IRS. If you are a Canadian resident, spend most of time here in Canada and file your taxes, you have a closer connection to Canada.

You have a closer connection to Canada if you have spent less than 183 days in the US during the current calendar year, your tax home is in Canada and you can demonstrate that your Canadian connection is closer than the connection with United States.

When to file form 8840?

Form 8840, also known as Closer Connection Exception for Aliens Statement, must be filed with IRS before the due date for filing of US income tax return for individuals. Due date for filing income tax return in US is 15th of April whereas for the individuals who do not have US source employment income due date is 15th of June. This form is filed even if you do not have US income. As mentioned before US taxes worldwide income of US residents so skipping this form may have serious tax consequences.

Taxes for Residents of both United States and Canada

If you are resident of both United States and Canada under the tax laws, you can use Canada-US Tax treaty to avoid double taxation on your worldwide income. Under the US-Canada Tax treaty you can choose to be resident of either country. You must file form 1040-NR which is US individual tax return for Non-residents. It has the same deadlines as the filing of other US Individual tax returns. You must attach treaty disclosure form. If you fail to file treaty disclosure return you may be slapped with USD 1000 penalty.

Tax returns for dual citizens or residents, and snowbird filings are complex tax matters and a help from professional tax preparation service be sought to ensure the compliance with tax laws. We, at Maroof HS CPA Professional Corporation provide individual tax preparation services in Canada and United States along with Corporation Tax Services for Canada and United States.

Read: Canadian Businesses with US Income tax reporting. I am a Canadian business and doing business in US, should i file US income tax return?

Read: US taxes for Amazon sellers 

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