What are tax obligations in this situation?

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noront2
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What are tax obligations in this situation?

Post by noront2 » Thu Sep 10, 2020 2:02 pm

I am a Canadian working remotely for the past few years in the U.S. for a Canadian company while on a work visa. I got married to a U.S. citizen while I was here and earlier this year I filed for my green card. As part of that process, I've been told I'm not allowed to leave the U.S. until I've received specific permission (advance parole.)

Thanks to COVID-19 however, the immigration application processing is all backed up, so my immigration lawyer has advised me that I'm not likely to receive travel authorization until sometime next year, probably mid-March if I'm lucky.

I was informed this week that my Canadian employer wishes to close out my U.S. position by the end of the year and would like me to return to Canada. They are not willing to wait for my immigration application to be completed. It's a take-it-or-leave it situation because of some financial issues they are facing.

My Canadian office is still on a remote work situation with Covid, so technically I still have the option of working from anywhere. But I would be considered a Canadian-resident employee by my employer.

I have an immigration lawyer, so I'm working through the immigration and work permit issues (including the possibility of an emergency advance parole). My question here is strictly about tax-filing obligations.

If I choose to stay with my Canadian employer, I expect I will have to reestablish myself as a a Canadian resident for tax purposes. That's easy enough for me to do as I have kept my Canadian bank accounts, mailing address, etc. active while I've been in the U.S.

But if I'm actually residing in the U.S., what are my tax-filing obligations in the U.S. and what is the best way to avoid double taxation?

I'm also particularly concerned about whether this would trigger any U.S. tax obligations for my Canadian employer as that would definitely be a huge problem.

nelsona
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Re: What are tax obligations in this situation?

Post by nelsona » Thu Sep 10, 2020 7:59 pm

Since you are married to a US cirizen, you will likley wisjh to continue filing jointly in US, with or without GC (if you get GC, you will HAVE to file in US, jointly).

For your work in Canada, you will pay taxes in Canada and province, and US will credit you on your US joint return.

an I ask how you have been reporting your CDn wages so far?

Realize that, advance parole or not, GC or not, if you move back to Canada, you won;t be able to keep your GC for very long (about a year), so waiting for advance parole (AP) might be moot.

Just to clarify, which I'm sure you know, it's nit that you are not allowed to leave, it is that if you do leave without AP, your I-485 is considered abandonned, and you *might* not be allowed to return to US until your I-485 is out of the system. So not the best situation, but you can leave US (i wouldn't, unless extreme reasons).
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noront2
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Joined: Fri Mar 20, 2020 11:24 pm

Re: What are tax obligations in this situation?

Post by noront2 » Thu Sep 10, 2020 9:36 pm

Thanks very much! We filed separately in the US. My spouse has large outstanding student loans and is on an income-adjusted repayment plan and doesn't want my income added in.

However, my income from the Canadian employer was reported as U.S. income. I've been running a U.S. office for a Canadian company. I was considered a non-resident of Canada for tax purposes and did not file a tax return to CRA. I received a W2. My employer has a U.S. tax number (not sure if that's the correct terminology, but they paid taxes as an employer in the U.S.)

I'm not looking to move back to Canada. I'm actually expecting to remain in the U.S. long-term. I may need to go home for a few weeks - up to a couple months at most. (I am aware of the advance parole issue.) It's my job that is being "repatriated" to Canada.

My employer has made it clear that they want to stop paying me as a "U.S.-based employee." They want to end their tax obligations in the U.S. starting next year. They intend to pay me as a "Canada-based employee" so my deductions would go to CRA.

Since it's a remote job though, it's not like I actually have to live anywhere near the head office. Ideally, I could go home, sign whatever papers they want to make me a Canadian-based employee and then just come back to the U.S. and work from here. I'd like to find a U.S.-based job, but I expect it will take me a few months to line something up (once I get employment authorization.) So I would like to keep my job until I find something else.

But will this kind of set-up trigger any U.S. tax obligation for my employer? Or would I be considered more like Canadian tourist who works remotely from their winter home in the U.S.? (From a tax perspective, not an immigration perspective.)

My biggest concern is around whether or not it creates any issues for my employer, because that will be a huge problem. I'd also rather not pay taxes personally to both the U.S. and Canada. It's not even clear to me that I would need to file U.S. taxes next year, but I assume so.

I'm hoping by the time I have to file taxes for the 2021 tax year, I'll have a green card and a new U.S.-based job and can hire a cross-border accountant to work it out for me that year!hey

nelsona
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Re: What are tax obligations in this situation?

Post by nelsona » Thu Sep 10, 2020 10:13 pm

On filing separately: You may be saving a little in repayment, but you are probably BOTH paying much more in tax that any overall savings.

So, right now, you aren't really working "remotely". You are working in US for a "US company" (i trust this was the basis of your L work visa).
Your scheme to "pretend" to return to Canada is not really kosher. Obviously your firm doesn't want a US presence anymore, so they would not want to go along with having you be in US working as an Cdn resident employee, since that would make you a "US-based employee". It's not a matter of signing papers, it is where you are physically located.

For now though, there isn't much to discuss, as you won't be going back to Canada without AP.

You can look for a US job now if you want, your employment authorization will come with your AP.

My opinion is that you need to be telling your employer that you need to stay in US (for COVID and immigration reasons) and that they need to decide if they want to keep you in US as an employee, make you a contractor in US (that would not create a tax issue for the firm) once you have EAD, or time to go.
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noront2
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Re: What are tax obligations in this situation?

Post by noront2 » Thu Sep 10, 2020 10:50 pm

My spouse has been unemployed for much of the past year so the income-repayment plan was $0 for student loans in 2019. I probably did pay more in taxes, though it was hard as a layperson to calculate whether it was more than the student loan obligation.

I understand that the situation I outlined is not entirely kosher. That's why I asked about what the tax obligations might be, for the company and for me. This is pretty abrupt change to my job situation that I did not anticipate. It leaves me with a bit of an issue on the immigration front. So I've been gaming out some scenarios in my head to figure out which ones are actually feasible.

Most likely I will either apply for an emergency advance parole and return to Canada to work for a bit before tendering my resignation and returning to the U.S., or I will leave the company and not return to Canada at all. The nuclear option in my mind is to abandon the GC application and resume life in Canada.

Option 4 was to try to remain with my employer, but do the work from the U.S. If it was easily done, I was considering proposing it to my employer as a compromise. But I'm still a bit unclear on what the tax implications would be for me or my employer. I assume it would be a nightmare for both. In which case, I doubt they would consider allowing me to work under this kind of arrangement.

nelsona
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Re: What are tax obligations in this situation?

Post by nelsona » Fri Sep 11, 2020 12:13 am

The only way Option 4 is not a tax problem, is if they simply make you a contractor, paying you as self-employed. This will give you other problems, like medical insurance. Otherwise, they pretty much have to keep you as a US employee, which they appear to be very reluctant to continue.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

noront2
Posts: 5
Joined: Fri Mar 20, 2020 11:24 pm

Re: What are tax obligations in this situation?

Post by noront2 » Fri Sep 11, 2020 12:19 am

Makes sense, thank you!

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