Income in both US and Canada

[plshelpme]

Hello! I acquired US citizenship through birth to a US citizen but was born in Canada and have lived there my entire life. I am only considered a resident of Canada and not the US. I recently began school at a US college and I am earning income through the school. For the 2019 tax year, I will have income from both the US and Canada and was wondering if these would be filed as they normally would be and just reporting foreign income for each country or if I would do the foreign income tax credit. I’m at a lost because of different information I’ve been given from accountants and hoping to get some clarity on the best way to approach this. I only have an RRSP and do not meet the threshold for the foreign account taxation for the US but am aware that I still need to report both. Any help is greatly appreciated!

[Bubba Gums]

It sounds as if you have become a resident of the United States to become a student. Why do you think you are a resident of Canada? Does your income from the US school come from a Canadian source?

[plshelpme]

My primary address is in Canada. I live in a cross-border city so I go to school and come back everyday. I do not live in the US nor have an address. Not sure what you mean by the second point. It’s a US school so it’s US income.

[Ron.Henderson]

Is it necessary to file US returns at all? If there has been no withholding - it's just some sort of stipend from the school - and you don't need a refund, then possibly you can avoid the paperwork hassle.

Although you are a dual citizen, as long as you are living in Canada with no US assets, it's best to minimize your contact with the IRS by filing nothing.

[plshelpme]

I think the trouble is that taxes were withheld automatically. Although I am not making a substantial amount, I don’t want to run into trouble for not filing both my US and Canadian income in the long run since that’s way more of a hassle. I receive a stipend and scholarship waiver from the college so that makes it more confusing. I’ve heard regardless of whether or not you’re earning income in the US you have to report your Canadian income in the US.

[Ron.Henderson]

US law is that all US citizens no matter where they live must file US tax returns, though they typically owe zero because of foreign tax credits or the earned income exclusion. In reality the compliance rate is less than 10 percent. For you, a Canadian born in Canada, living in Canada, filing US tax returns would be a dumb idea - paperwork hassles and depending on how you invest (e.g. TFSAs) potential costs on top of your Canadian taxes. So definitely worth ignoring the IRS, which can do nothing about it. Furthermore, do not disclose your US citizenship to Canadian banks, to prevent FATCA reporting.

However, you are studying in the US. I actually don't know what to advise given the cross-border commute. It's probably not kosher but you could file Canadian returns for only Canadian income, and US returns for only US income, and hopefully net zero owing on the latter so you can claw back the withholding. It sort of depends on your plans - would you eventually move to the US, or are you just commuting to school for a few years?

[plshelpme]

Thanks for the information! I have one year of schooling left and then I’ll be licensed to work in the state of Michigan but plan to remain in Canada and eventually transfer my licensing over to Canada. So I don’t plan on working in the US for more than 3-5 years.

[Ron.Henderson]

Main point being, with the exception of FATCA reporting (the IRS receives year-end balances and interest/dividend data on certain types of Canadian accounts, though not RRSP/RESP/TFSA etc.), the US doesn't know anything about your Canadian income, and vice versa. If you are only planning on commuting to school for a few years and do not wish to have a lifelong relationship with the IRS, you might want to simplify your affairs by keeping each country ignorant of the other.

[Ron.Henderson]

PS The FATCA reporting only happens if you identify yourself as a US citizen to your Canadian bank. Being born in Canada, you have no reason to do this.

[Ron.Henderson]

PPS If you actually plan to work in the US for a number of years - either living there or commuting - then you probably need to do this all correctly, because you may build up some retirement savings or other assets. But if you were just a Canadian with US citizenship by parentage, living in Canada, even going to school across the border is probably not a good reason to entangle one's self too deeply in the US tax system.