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Extending your US stay because of COVID? Who has to file a US Return?

Many Canadians flocking to the US and spending long periods of time there should be aware that they may have US tax return filing obligations. If you are Canadian (citizen and resident) and have spent extended periods of time south of our Canadian borders, you can be considered a US tax resident if you were physically present in the US for a substantial period of time.

As a Canadian resident, you can simultaneously be treated as a US resident and be subject to filing a US tax return if you satisfy a quantitative “substantial presence test.”

The substantial presence test

For the purposes of the substantial presence test, you can exclude:

  1. Days you were unable to leave the US due to a medical condition or medical problem that arose while you were in the states. For the year 2020 (not 2021), you can exclude days while in the US due to COVID-19 medical conditions.
  2. Days that you are an exempt individual:
    • Teacher or Trainee working in the US
    • Student in the US
  1. Days you regularly commuted to work from a residence in Canada or Mexico

The calculation

Substantial presence in the US is met if you were in the US during 2021 for at least:

  • 31 days during 2021, and
  • A combined 183 days during the period of 2021, 2020, and 2019, counting all the days of physical presence in 2021 but only 1/3 the number of days of presence in 2020 and only 1/6 the number of days in 2019.

The real-world example

If John, a Canadian citizen and resident (and not a US citizen or green card holder), was present in the US for 60 days during 2021, 250 days during 2020, and 275 days during 2019 then the total amount of days John spent in the US according to the substantial presence test is:

2021: 60

2020: 250 ÷ 3 = 83.33

2019: 275 ÷ 6 = 45.83

This equals a total of 189 days.

Therefore, John meets the substantial presence test and will be required to file a closer connection statement (Form 8840).

Although John meets the substantial presence test he will NOT be treated as a US resident for tax purposes in 2021 (as long as he files a timely closer connection statement) because:

  • He was present in the US for fewer than 183 days during 2021,
  • He had a tax home in a foreign country (Canada), and
  • He had a closer connection to Canada.

What if you stayed in the US for more than 183 days in 2021?

If you were present in the US during 2021 for 183 days or more then the closer connection statement is not applicable. You will need to rely on the Income Tax Treaty and file a non-resident US tax return (Form 1040NR) and disclose the necessary Treaty tie-breaker rules.

There may be other informational forms that you will be required to file with your non-resident return (e.g. Forms 8938, 5471, 3520, etc). There are substantial penalties for not filing these informational forms or for filing them late.

Preparing your US tax return for 2021

If you’ve spent a substantial amount of time in the US you should also consider the fact that states don’t necessarily conform to the Federal tax treatment and may consider you to be a resident of the State for income tax purposes.

If you are concerned about how this might affect you, please reach out to Chaim Rosner at 647.256.7668 or cyr@zeifmans.ca.

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