Last month we posted an article regarding the US Substantial Presence Test and the possibility of being required to file a US income tax return. We thought we would provide you with some follow up information.
Canadians who are not citizens of the United States or green card holders and have no source of income in the United States can be subject to income taxes in the United States on their worldwide income if they are deemed to be a Resident Alien.
In order to determine any possible tax consequences or implications for those Canadians that spend a significant amount of time in the United States, you must determine whether you are a Non-Resident Alien or a Resident Alien.
The Internal Revenue Service determines your status by the number of days you spend in the United States over a 3 year period using what is referred to as the Substantial Presence Test.
Let’s say you’ve done your Substantial Presence Test and you can pretty much tell what you’re status will be for the upcoming tax season. What does that mean now?
Non-Resident Aliens are usually subject to tax in the US only on the US source income. Under limited circumstances, certain foreign source income is subject to tax in the US.
Which form to you file? There are a couple of forms you could use:
Ensure that you review the instructions, there are certain items contained in the instructions for 1040NR-EZ that may qualify you to file the more streamlined return.
If it’s determined that you are a Resident Alien, income is generally subject to tax in the same manner as a US citizen. This means that your worldwide income is subject to US tax and must be reported on a US tax return. Income of resident aliens is subject to the graduated tax rates that apply to US citizens.
Resident Aliens use the tax table and tax rate schedules which apply to US citizens found in the instructions for your form. You must report all interest, dividends, wages and other types of income on your US tax return. You must report these amounts whether the source of income is within or outside of the US.
Which form do you file? Here are a few forms you could use:
- Form 1040 with accompanying instructions
- Form 1040A with accompanying instructions
- Form 1040EZ with accompanying instructions
If you need help determining which form to file, the IRS provides an Interactive Tax Assistant or you can review Which Form – 1040, 1040A or 1040EZ which also provides links to schedules and additional information.
If you don’t already have one, don’t forget your Individual Taxpayer Identification Number (ITIN)! Most Aliens do not qualify for a Social Security Number, so need an alternate identifying number for the IRS. You can apply for your ITIN number at the same time you file your US tax return. For more information on the different taxpayer identification numbers available, review this section on the IRS website.
You can apply for your ITIN number at the same time you file your US tax return. For more information on the different taxpayer identification numbers available, review this section on the IRS website.
Note: The links provided to tax forms and information above are from the 2013 tax year. Check the IRS website in early 2015 to obtain the 2014 tax forms.
Wondering how this ties into securities accounting?
Here’s how this ties into securities accounting: If you are an investor or not, and you spend time in the US, depending on your filing status in the eyes of the IRS, you may need to report your worldwide income on a US tax return.
Read our earlier article: You May Be Required To File A US Tax Return If You Visit The United States Regularly for more on this topic.
This information is provided as an information service only and is not intended to substitute for competent professional advice. No action should be initiated without consulting a professional advisor.