After 2 year TN, about to return to Canada

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QC2OH
Posts: 20
Joined: Sun Apr 05, 2015 10:55 am

Post by QC2OH »

According to IRS Pub 502 (page 16), it appears that while foreign prescriptions imported into the USA are indeed excluded, one is permitted to:

"include the cost of a prescribed drug you purchase and consume in another country if the drug is legal in both the other country and the United States."

I'm also planning to purchase prescription eyeglasses and have some cavities repaired, which, from what I've seen, I would be also allowed to claim on the HSA in a tax-free manner.

If I've missed something I'd be grateful if someone could point me in the right direction, as this would be a great tax-free way to empty my ~$1500 HSA.
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Obviously such a small amount can be used uo, but even if taken as income is negligible in tax. In the other posters case, we are talking about stocking away funds in an HSA as a retirement vehicle.

And I would be checking with your HSA manager. Many require you use the credit card and not submit claims on paper. The card may not work in Canada. And most provinces have mandatory drug plans which you must subscribe to if you don't have work insurance, complicating matters.

Just saying that you won't be using up the HSA anytime soon. Just remember that what you eventually take out for non-medical purposes will be treated as pension
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
QC2OH
Posts: 20
Joined: Sun Apr 05, 2015 10:55 am

Post by QC2OH »

So, here's what happened in the end:

I mailed in my ECI return in mid-April and the IRS refunded me this week, but rejected my spousal exemption because she doesn't have an SSN/ITIN. (Pub 519, page 27 clearly says she needs an ITIN and I missed that). So I paid graduated tax of $1318 plus the 10% early withdrawal ($1590). An effective rate of 18.3%, compared to the 14.9% I had been hoping for.

The IRS said my spouse could request an ITIN, then I can file 1040X to get the exemption retroactively. Not worth it in my opinion, nor do I plan refile with the CRA to amend my T2209. Just not worth the headache if anything is re-opened.

Looking back, should I have filed NEC and claimed 15% by treaty? From what I've read on the internet, it would have been a crapshoot to see if the IRS also levied the 10% early withdrawal on top of that.



*Aside - IRS acceptance agents (i.e. tax accountants) can accept and verify ITIN documents (original passport, etc., since even notarized copies are not allowed). Some are located in Canada. I called one near our home, who charges $200 to accept the W-7 and verify documents (seems fair). The person I spoke with was of the opinion that a) I was not entitled to claim my spouse as an exemption on a 1040NR, and b) that the IRS would probably not accept a request for an ITIN just to modify a 1040X. I don't know why she said a), since it contradicts what I've read and the information I received on the phone from the IRS, but I figured I'd mention it here in case she's right.
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

NEC, in my opinion, doesn't get you out of the penalty.

I guess I wouldn't bother trying to lower it with ITIN, that is such a bother these days.

It's up to you if you want to get the bigger FTC on your CDn return.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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