American Taxes

[parker24]

Hello All!

I'm wondering what everyone knows about the taxes and filing them as a PR in Canada? I just heard from a friend who married an American that when a PR gets a job in Canada, they have to claim their income to the US as well? Which confused me, wondering if anyone else knows much about this?

Thanks

 

[YorkFactory]

Citizens and permanent residents of the United States have to file U.S. tax returns no matter where they live, and report all of their income, regardless of source.

That said, you probably won't end up owing taxes to the U.S. for tax years when you don't reside there (in general, you would probably have to make more than $92,000 a year, and live in a country with lower income taxes than the U.S., which Canada is not). But you should still file.

Also, if you have non-U.S. bank accounts that have US$10,000 at any point in the tax year, you must file an FBAR listing all of your accounts.

 

[AmericaninQuebec]

Yes, Americans must file tax returns even when living outside of the U.S. There are two ways to do so. You can exclude up to $95,100 of foreign earned income on your tax returns (the new rate for 2012). This means they will not even consider it as income. If all of your income falls into this category then you'd end up with $0 in taxable revenue. http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html

If you earn over $95,100 a year then you will likely want to take a foreign tax credit for all taxes paid on income to non-U.S. authorities. Unless you earned so little over that you would not owe taxes anyway in the U.S. (or are able to take other deductions/credits that limit or eliminate your tax liability back in the U.S.). The foreign tax credit is meant to eliminate the burden of double taxation. Even if you pay a lower tax rate in your current nation (unlikely in Canada, but anything is possible I suppose) then you will only be taxed at a rate that "makes up the difference" between what you've already paid and what you would have been subject to if the money was earned in the U.S. http://www.irs.gov/businesses/small/international/article/0,,id=97037,00.html

Either way, all Americans must continue to file federal income tax returns.

Finally, if you wish to file jointly with your spouse (as a way to take advantage of certain tax deductions/credits) then they will have to apply for a Foreign Tax ID number. I'm not certain if at that point the combined income would be subject to the $95,100 limit or if it applies individually. I'm not a tax attorney or accountant, just someone who has read up on this a bit.

 

[cantor2537]

So here's a question.

I right now have a Canadian account with over 10K used to pay my mortgage. My paychecks get deposited in this account.

I also have a corporate account. I am a doctor and my fee for service billings go into that account.

(I still get a paycheck and am on T4 as I have multiple jobs and am on salary for one job but fee for service in my other private practice).

My wife is coming soon. Should I set up a joint account with her? I was planning on paying her a salary from my corporate account for some "work" she will be doing for my corporation. As she will have no income when she lands (she will still be going to school), I can avoid taxes this way as I'm already in the top bracket just with my salary alone. Question is should she always have less than 10K in this account? Or will it matter? Will the US government ask for me to disclose my income (which is significantly more than 92K) even though I have no US citizenship or PR? Is my income automatically her income if we have a joint account?

 

[parker24]

Okay that all makes sense. But should he have included me on his taxes? We're starting to freak out because he didn't. We got married in September, he stopped working in May. :'(

 

[AmericaninQuebec]

Okay that all makes sense. But should he have included me on his taxes? We're starting to freak out because he didn't. We got married in September, he stopped working in May. :'(

In the U.S. you may choose to file jointly with a spouse or separately (even if you are married). If he filed separately (he would have checked that box on the tax return forms) then no, he would not have had to list you or include your tax information. I filed jointly last year with my Canadian husband, so that I could take advantage of certain tax credits against my American earned income. As I earned nothing in the U.S. this year and there are no tax credits to really take advantage of I do not plan on filing jointly again as it will be much simpler to file separately.

If taxes make you nervous I would recommend finding a tax attorney or experienced accountant in one of the larger cities near you. It may take a little searching, but you should be able to find an accountant with experience helping Americans in Canada with their taxes.

Modified to add: He should have listed on the forms though that he is married, since he was married during 2011. It affects which tax credits and deductions he can take advantage of, which is why a lot of married couples in the U.S. do file jointly instead of separately. I believe he can amend his application if it was improperly filed. He should call the IRS helpline for more info about how to do that or check out their website.

 

[parker24]

He checked "Single" instead of anything married. That's why we're worried.

 

[AmericaninQuebec]

He checked "Single" instead of anything married. That's why we're worried.

See the added modification to my above message. He should contact the IRS about amending his forms, because he misrepresented himself by checking single instead of married.

 

[parker24]

See the added modification to my above message. He should contact the IRS about amending his forms, because he misrepresented himself by checking single instead of married.

Okay Thank you!

 

[YorkFactory]

My wife is coming soon. Should I set up a joint account with her? I was planning on paying her a salary from my corporate account for some "work" she will be doing for my corporation. As she will have no income when she lands (she will still be going to school), I can avoid taxes this way as I'm already in the top bracket just with my salary alone. Question is should she always have less than 10K in this account? Or will it matter? Will the US government ask for me to disclose my income (which is significantly more than 92K) even though I have no US citizenship or PR? Is my income automatically her income if we have a joint account?

You really need an accountant and/or tax lawyer versed in U.S. and Canadian tax law to answer these questions.

If you don't have a SSN, you will need an ITIN so that she can list you on her U.S. tax return, even if she's married filing separately.

The amount in one particular non-U.S. account is less important than the total in all of her non-U.S. accounts. If they are worth US$10,000 or more combined at any point during the year, they are all reportable, even if no single account even approaches $10,000. For instance, if she has an account worth $8,000, an account worth $1,000, and three accounts worth $500, she must report every single account on her FBAR.

 

[StateOfConfusion]

You really need an accountant and/or tax lawyer versed in U.S. and Canadian tax law to answer these questions.

If you don't have a SSN, you will need an ITIN so that she can list you on her U.S. tax return, even if she's married filing separately.

The amount in one particular non-U.S. account is less important than the total in all of her non-U.S. accounts. If they are worth US$10,000 or more combined at any point during the year, they are all reportable, even if no single account even approaches $10,000. For instance, if she has an account worth $8,000, an account worth $1,000, and three accounts worth $500, she must report every single account on her FBAR.

I actually called the IRS and asked them how I should file since my husband is a nonresident alien (Canadian) and doesn't have a social security number or an ITIN. And since he didn't meet the presence law (being in the US for 180 days or more) and we plan to file "Married but filing separately", my spouse doesn't need an ITIN or a ss#. They told me I would have to file by mail, and in the section for my husband on the 1040 form I just need to write "nonresident alien". Seems simple enough. Granted you aren't entitled to some credits you would be if you file "Married filing jointly".

The IRS website does have a lot of info in their instruction booklets, and you can also call the IRS and ask questions, though be warned the wait time for speaking with someone is quite lengthy this time of year in the states.

For the record, I still plan to go to my accountant and let him figure it out, but I figured I would put up what I learned upon calling the IRS. Hope it can help someone out.

 

[AmericaninQuebec]

I actually called the IRS and asked them how I should file since my husband is a nonresident alien (Canadian) and doesn't have a social security number or an ITIN. And since he didn't meet the presence law (being in the US for 180 days or more) and we plan to file "Married but filing separately", my spouse doesn't need an ITIN or a ss#. They told me I would have to file by mail, and in the section for my husband on the 1040 form I just need to write "nonresident alien". Seems simple enough. Granted you aren't entitled to some credits you would be if you file "Married filing jointly".

The IRS website does have a lot of info in their instruction booklets, and you can also call the IRS and ask questions, though be warned the wait time for speaking with someone is quite lengthy this time of year in the states.

For the record, I still plan to go to my accountant and let him figure it out, but I figured I would put up what I learned upon calling the IRS. Hope it can help someone out.

The IRS hotline is really quite helpful, especially the one specifically for expats (though sadly it's not toll free). The website as well, but it can take some digging. I called the expat hotline a couple of times last year for help and clarifications. I ended up filing jointly so that I could take advantage of some tax credits, and the only thing that added really was preparing the form for the ITIN for my husband. We had a bit of a hassle with that, since they only accept an official copy of a passport, which you can only get a specific Immigration Canada locations. Other than that though it really was fairly simple, because we were able to exclude all of his foreign earned income.

This year I plan on filing separately though, and probably from here on out since neither of us is earning money in the U.S. and I don't think there will be any refundable tax credits to take advantage of anyway.

 

[YorkFactory]

I actually called the IRS and asked them how I should file since my husband is a nonresident alien (Canadian) and doesn't have a social security number or an ITIN. And since he didn't meet the presence law (being in the US for 180 days or more) and we plan to file "Married but filing separately", my spouse doesn't need an ITIN or a ss#. They told me I would have to file by mail, and in the section for my husband on the 1040 form I just need to write "nonresident alien". Seems simple enough. Granted you aren't entitled to some credits you would be if you file "Married filing jointly".

OK, makes sense. Sorry, I don't have any first-hand knowledge about this because my sponsor is a dual citizen and so has an SSN. The couple I know who were in this situation must have filed jointly, not separately, because one of them did require an ITIN.