Income Tax Question for TN visa holders

projectpete · Post by **projectpete** » Wed Apr 25, 2007 5:49 am

Hi,

I am from Canada and have a TN to work in the states. I worked half a year in canada and half a year in the U.S. I filed my U.S. income taxes in the states and I filed both my canadian and U.S. income in canada. Is this correct?

Canadian Revenue Agency is saying I owe them $3000 and I have no idea how, I only made $15,000 while I was in canada and I paid $2300 in income tax from my paycheques. Does this sound right? What accountants did any of you use and did you file both incomes in Canada if you are from Canada?

Do I not need to file a form T-2209 to get my us taxes as credit towards canadian taxes?

nelsona · Post by **nelsona** » Wed Apr 25, 2007 1:32 pm

If you live in Canada, then you have reported your in come correctly to canada. You are supposed to get credit on your Cdn rteturn for taxes owed in US. Not with a form but on your return.

For US, you should be filing a 1040NR. If you filed anything else, and did not include all your Cdn income,. you have filed incorrectly.

projectpete · Post by **projectpete** » Wed Apr 25, 2007 6:56 pm

im sorry i am living in the states right now. from Jan 2006 to june 29 2006 i lived in canada (only worked from Jan to may in canada), from june 29 2006 i lived and worked in the US.

I filed a regular 1040 here and only included my US taxes in the US, I filed my canadian taxes and american income in canada.

Is this the correct way, I called 3 different accountants and got 3 different answers.

Nelsona with the info i just gave can you please tell me what i should do?

nelsona · Post by **nelsona** » Thu Apr 26, 2007 6:30 am

All your tax returns were filed incorrectly.

If you left canada, you should have filed your returns with a departure date, leaving in june. This makes your US income non-reportable. Look at the "Emigrnats Guide" from CRA on how to file.

In US, if you filed a 1040, this means reporting all world income for the year, including your Cdn income, and then taking credit for any Cdn tax paid.

So, what you did was the reverse of what you should have done.

projectpete · Post by **projectpete** » Thu Apr 26, 2007 7:36 am

i just spoke with the international tax office branch of the CRA and nelsona you are right. thank you.

since i already filed a 1040, is it still possible for me to correct it by filing a 1040NR?

i paid $350 for an accountant to do my taxes that is supposed to know about international taxes and they did it wrong!

projectpete · Post by **projectpete** » Thu Apr 26, 2007 7:40 am

also, the CRA said i qualify as a non-resident of canada, so if i am a non-resident of canada i cant be a non-resident of the states too?

so was i correct in filing a regular 1040 its just that I have to add my worldwide income to it? also, can i use the taxes paid in canada as a credit?

nelsona · Post by **nelsona** » Thu Apr 26, 2007 8:09 am

That is correct. most people who move to US mid-year, report all income, but then EXCLUDE the Cdn wages by Form 2555. I have described this elsewhere.

You could have filed a "part-year" 1040 (which is in effect what you did), but on this you would not be allowed to take the standard deduction, resulting in higher US tax. I'm 1000% positive you took the standard deduction, which means that you were also supposed to report world income.

nelsona · Post by **nelsona** » Thu Apr 26, 2007 8:13 am

Note that if using the 2555 method, you can only exclude wages, not any other Cdn income.

Also, you cannot then take credit for Cdn taxes paid on your wages. You would get credit for taxes paid on other Cdn income you reported on your 1040 (cap gains, rent, etc).

Don't forget, that as a departing Cdn resident, your Cdn return must also include other things like deemed disposition, based on the date you left. Your deductions are also reduced.

Like I said, all your returns are wrong.

projectpete · Post by **projectpete** » Thu Apr 26, 2007 9:25 am

now i am lost, in your opinion what should i do?

Can I just make a reassessment with the IRS to add my "worldwide income" to my already filed 1040?

or should i just fill out a form 2555 and mail it to the IRS to be mated with my existing 1040?

and for my canadian return i will tell them to only claim the canadian income.

nelsona · Post by **nelsona** » Thu Apr 26, 2007 10:53 am

I would ammend my 1040 to include all my Cdn income, and then exclude my wages by 2555.

Your other choice is to identify yourself as dual status, remove the standard deduction, and itemize, but this will lead to more US tax.

You should have been looking into this more closely months ago, BEFORE filing.

projectpete · Post by **projectpete** » Thu Apr 26, 2007 2:38 pm

I did research this in March and the way I am doing my taxes is how i was told by a couple tax companies.

They say if I claim non-residency i lose my canada federal health plan and if i do move back it will take 6 months to get it back.

nelsona · Post by **nelsona** » Thu Apr 26, 2007 2:41 pm

It does not matter whether you claim residency or not; once you leave canada for 6 months (7 for ontario) you are no longer covered by Cdn healthcare.

But that is why you have coverage with your job.

Anyways, the advice you got from whomever you spoke to was wrong 9not surprising). I hope it did not cost you much money.

nelsona · Post by **nelsona** » Thu Apr 26, 2007 2:41 pm

In fact, for most provinces, as soon as you move, you are no longer considered a resident for helthcare purposes.

projectpete · Post by **projectpete** » Thu Apr 26, 2007 3:16 pm

Thanks Nelsona alot for all your help. I called the accountant that handled my canadian return and told them to only include my canadian income and put an exit date of June 29, 2006.

Now I am going to file a 1040x to ammend my canadian income and a form 2555. When you say a form 2555 excludes my canadian wages, does that mean I am not taxed by the IRS for my canadian wages?

Sorry I searched everywhere for the explanation of form 2555 but I cant find it.

nelsona · Post by **nelsona** » Thu Apr 26, 2007 3:21 pm

2555 excludes your Cdn wages from IRS taxation.