Quebecers who spend the winter in the southern United States are familiar with the Substantial Presence Test criteria (i.e., the 183-day calculation over three years) and Form 8840, which allows them to be considered non-residents of the United States. To complete this form, taxpayers must have spent less than 183 days in the United States during the current year.
As a result, spending more than 183 days in the United States during a calendar year can have significant tax implications, the main ones being:
1. Tax residency: if you spend more than 183 days in the United States during a calendar year, you may be considered a tax resident for U.S. income tax purposes, even if you do not have legal resident status (green card) or U.S. citizenship.
2. Income tax: As a U.S. tax resident, you would be required to report your worldwide income to the U.S. tax authorities and pay taxes on that income, whether you earned it in the United States or abroad.
3. Tax treaty: However, Canada and the United States have signed a tax treaty that takes precedence over U.S. law. Thus, under Article IV of this treaty, if your primary and secondary ties are stronger with Canada, you are likely to be considered a Canadian resident and a non-resident of the United States for tax purposes.
4. Tax return: In such a case, you would be required to file a U.S. federal tax return (Form 1040-NR), accompanied by Form 8833, which allows you to take advantage of the provisions of this tax treaty. In addition to this return, you would be required to file several U.S. information forms to disclose assets you hold outside the United States, such as forms FBAR, 5471, and 3520/3520-A. Failure to file these forms may result in penalties of $10,000 per form not filed.
5. Individual Taxpayer Identification Number (ITIN): When filing a U.S. tax return, taxpayers must also obtain an ITIN. The application must be accompanied by a copy of your passport certified by an authorized agent (“Acceptance Agent”). Raymond Chabot Grant Thornton is authorized by the U.S. Internal Revenue Service to certify Canadian passports.
If you plan to spend more than 183 days in the United States during a calendar year, it is important to plan your tax situation accordingly and consult an international tax expert to fully understand your tax obligations and explore strategies to minimize your tax burden.
