Tax issue for H1B and H4
Moderator: Mark T Serbinski CA CPA
Tax issue for H1B and H4
I am a landed Canadian immigrant and will go to the US on an H4 visa. I need your advice and suggestion. If my Husband, who is a Canadian citizen working in USA on an H1B, applies for non-Canadian-resident status, what tax form does he need to file with Canadian government? Do I need to file the same form to inform the Canadian government? Thank you for your help.
Although there is an NR73 that has a list of what CRA considers ties, the correct manner of declaring non-residency is as follows:
Inform all banks, RRSP, investment firms that you deal with that you are moviing to US. This will alert them to the need to withhold non-resident tax on any income they pay you.
If you own rental property, arrange for monthly tax payment to be made on the rental income, sent to CRA.
Read the "Emigrants" guide from CRA.
Next spring, when filing you final Cdn return, put the date of departure on page 1, and follow the instructions in the Emigrants guide.
This departure date is sufficient notification for CRA; if they have any questions, they will contact you.
Do NOT submit NR73 unless asked to do so; use it as a guide for yourselves.
Under the recent Landed Immigrant rules, you do not have to maintain tax residency to maintain your LI status, as long as you do not leave for longer than 3 years, I believe. in any event, it would be simple for you to get LI status again if you need it.
Many in your position, if eligible, get Cdn citizenship before leaving, just to avoid the hassle of re-applying for LI status.
<i>nelsona non grata... and non pro</i>
Inform all banks, RRSP, investment firms that you deal with that you are moviing to US. This will alert them to the need to withhold non-resident tax on any income they pay you.
If you own rental property, arrange for monthly tax payment to be made on the rental income, sent to CRA.
Read the "Emigrants" guide from CRA.
Next spring, when filing you final Cdn return, put the date of departure on page 1, and follow the instructions in the Emigrants guide.
This departure date is sufficient notification for CRA; if they have any questions, they will contact you.
Do NOT submit NR73 unless asked to do so; use it as a guide for yourselves.
Under the recent Landed Immigrant rules, you do not have to maintain tax residency to maintain your LI status, as long as you do not leave for longer than 3 years, I believe. in any event, it would be simple for you to get LI status again if you need it.
Many in your position, if eligible, get Cdn citizenship before leaving, just to avoid the hassle of re-applying for LI status.
<i>nelsona non grata... and non pro</i>
Hi,
My wife is in a similar situation. She is PR of Canada, has sent in her citizenship application, and has come to US with me under TD. We arrived in the US in late July and I, the TNer, just started my job in August. I am trying to find out how we should file to max our tax ($$) savings.
We have no (world) income in 2005 prior to our arrival in the US, and hence the only income for this year would be from the job that I am just starting. And we intend to file as Cdn tax residents so that there won't be complications to my wife's citizenship application. Plus I have saved up a significant amount of fed/prov education credits so might as well use them.
Here is what I think: For the US return, we will file as NR to minimize our US tax since we don't meet the SPT requirement. For the Cdn return, we will file as residents and the education amounts should reduce our tax to 0 with some leftover.
Is this the best approach to minimize our taxes on both sides? Any comment is appreciated.
My wife is in a similar situation. She is PR of Canada, has sent in her citizenship application, and has come to US with me under TD. We arrived in the US in late July and I, the TNer, just started my job in August. I am trying to find out how we should file to max our tax ($$) savings.
We have no (world) income in 2005 prior to our arrival in the US, and hence the only income for this year would be from the job that I am just starting. And we intend to file as Cdn tax residents so that there won't be complications to my wife's citizenship application. Plus I have saved up a significant amount of fed/prov education credits so might as well use them.
Here is what I think: For the US return, we will file as NR to minimize our US tax since we don't meet the SPT requirement. For the Cdn return, we will file as residents and the education amounts should reduce our tax to 0 with some leftover.
Is this the best approach to minimize our taxes on both sides? Any comment is appreciated.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">Canadian Citizenship application has nothing to do with tax, CIC and CRA cover diferent areas<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
True enough, however, one of the conditions of citizenship is physical presence in Canada, particularly at the final stages.
So a claim of being non-resident for tax purposes might indeed impacty citizenship.
There is some risk, if one truly has become non-resident on date dd/mm/yy and still files as a resident, since it then becomes difficult to establish another date as ones departure date.
But looking realistically at this situation: your spouse has already submitted her cit paperwork, and you will only be filing your tax return next april at the earliest, and there is no requirement to advise CRA before that date that you have moved, unless you hold Cdn rental property.
The issue of you being in US is more of a problem of logistics, ie. being available for interview/appearances/ etc. If this isn't a problem, I see no benefit of pretending to be in Canada for tax reasons.
Now, tax issues:
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">For the US return, we will file as NR to minimize our US tax since we don't meet the SPT requirement.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Assumiong you do insist on filing as a Cdn resident for the whole year, and you have sufficient tuition credits to write off all US income on your Cdn return, then the issue becomes your US taxes.
You are incorrect to concluse that filing a 1040NR will yield the least US tax: it will in fact yield the highest US tax, as you will file separately, and will have to itemize, and itemization is limited.
Since you made no income pre-arrival in US, you are very likely much better off to file a regular 1040 (the US canada treaty permits this even if you do not meet SPT), which gets you a joint tax rate, and standard deduction. There is nothing that prevents you from filing as a US resident even if you file as a resident elsewhere. US citizens have to do this anyways, regardless of where they live.
You would then use whatever US tax (and state and SS and medicare tax) as a foreign tax credit on your Cdn and prov return, using only enough of your tuition credit to bring the Cdn tax to zero. You might find that you will need very little of the tuition credit.
<i>nelsona non grata... and non pro</i>
True enough, however, one of the conditions of citizenship is physical presence in Canada, particularly at the final stages.
So a claim of being non-resident for tax purposes might indeed impacty citizenship.
There is some risk, if one truly has become non-resident on date dd/mm/yy and still files as a resident, since it then becomes difficult to establish another date as ones departure date.
But looking realistically at this situation: your spouse has already submitted her cit paperwork, and you will only be filing your tax return next april at the earliest, and there is no requirement to advise CRA before that date that you have moved, unless you hold Cdn rental property.
The issue of you being in US is more of a problem of logistics, ie. being available for interview/appearances/ etc. If this isn't a problem, I see no benefit of pretending to be in Canada for tax reasons.
Now, tax issues:
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">For the US return, we will file as NR to minimize our US tax since we don't meet the SPT requirement.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Assumiong you do insist on filing as a Cdn resident for the whole year, and you have sufficient tuition credits to write off all US income on your Cdn return, then the issue becomes your US taxes.
You are incorrect to concluse that filing a 1040NR will yield the least US tax: it will in fact yield the highest US tax, as you will file separately, and will have to itemize, and itemization is limited.
Since you made no income pre-arrival in US, you are very likely much better off to file a regular 1040 (the US canada treaty permits this even if you do not meet SPT), which gets you a joint tax rate, and standard deduction. There is nothing that prevents you from filing as a US resident even if you file as a resident elsewhere. US citizens have to do this anyways, regardless of where they live.
You would then use whatever US tax (and state and SS and medicare tax) as a foreign tax credit on your Cdn and prov return, using only enough of your tuition credit to bring the Cdn tax to zero. You might find that you will need very little of the tuition credit.
<i>nelsona non grata... and non pro</i>
Thanks Nelsona, for your insightful comments. Just a few more follow up questions:
For the US side,
1. Since we can file as US residents regardless how we file (resident or not) in Canada, should I get the W-4 form back from my employer right away and change the marital status to "married"? I was following the NR instruction at the time and checked the "single" box. Or can I wait until tax time to file 1040 as MFJ? Will IRS question the inconsistency?
For the Cdn side,
1. From a post on Grasmick's dated a few years back, I remember reading that the education amounts must be used first before any foreign tax credits can come into play. Is this still true?
2. (This is not really a question) The topic of severing ties to Canada has been covered extensively here. We don't have any primary ties (house / spouse) but still do have secondary ties (bank accts, credit cards, driver's license, cars/registration, medicare). Most of these can be severed, but my wife's driver's license would be out of the question since she is under TD and cannot get one in the US. Interesting~
For the US side,
1. Since we can file as US residents regardless how we file (resident or not) in Canada, should I get the W-4 form back from my employer right away and change the marital status to "married"? I was following the NR instruction at the time and checked the "single" box. Or can I wait until tax time to file 1040 as MFJ? Will IRS question the inconsistency?
For the Cdn side,
1. From a post on Grasmick's dated a few years back, I remember reading that the education amounts must be used first before any foreign tax credits can come into play. Is this still true?
2. (This is not really a question) The topic of severing ties to Canada has been covered extensively here. We don't have any primary ties (house / spouse) but still do have secondary ties (bank accts, credit cards, driver's license, cars/registration, medicare). Most of these can be severed, but my wife's driver's license would be out of the question since she is under TD and cannot get one in the US. Interesting~
1. Your withholding is meaningless when it comes to tax time. Your just lending the Gov't more money by having more withheld. Since you are only working 1/2 year, you are going to be over-withheld as it is.
As an aside, doesn't this prove that 1040 MFJ is a lower tax rate than 1040NR?
1. Perhaps the education credit entry comes before the foreign tax credit <i>calculation </i> on the tax form, but I don't know of any regulation that forces one to use all of a certain credit, before using another one.
You will iteratively use whatever education credit you need such that in conjunction with <b>all </b> your foreign credit, your tax will be zero. Any unused education credit will be carried forward (while foreign credits can't, thus the importance of using that one up entirely). The same reasoning applies in general that one uses dedcutions and credits that expire first like Medical expenses, before using things that can be carried forward, like RRSP deductions, donations,tuition. etc. You are never required to take a deduction/credit even if entitled to.
2. Both Medicare and Driver's license, while not a primary tie, indeed are particularly important to CRA in determining INTENT, since both are tied directly to where you live.
When your wife is no longer living in Canada, her driver's license wil become invalid, regardless of its expiration date (plus the fact that the requirement to keep address current would not be met). This would be particulary important in an insurance case, as a claim might easily be denied for driving without a license (even though a cop pulling her over might not catch such a subtelty, he should).
There are only a couple of states (IL, NJ) that will not grant a DL for those without an SSN. I would not make a blanket statement that TDs can't get DLs.
While the Feds allow you to bring in a car temporarily, your stae undoubtedly has regs that require you to plate the car within weeks of mioving, which in turn requires importation in most states. Again, living in US with a Cdnplated car is an insuarnce liability for you (even if you are granted coverage in US -- a claim would be denied).
Likewise any medicare coverage; Unless you make prior arrangemant with your province, indicating the temporary nature of your departure from the province, medicare ends the day you leave province for US. You should both be getting temporary medical insuarnce until your work medicla plan kicks in.
<i>nelsona non grata... and non pro</i>
As an aside, doesn't this prove that 1040 MFJ is a lower tax rate than 1040NR?
1. Perhaps the education credit entry comes before the foreign tax credit <i>calculation </i> on the tax form, but I don't know of any regulation that forces one to use all of a certain credit, before using another one.
You will iteratively use whatever education credit you need such that in conjunction with <b>all </b> your foreign credit, your tax will be zero. Any unused education credit will be carried forward (while foreign credits can't, thus the importance of using that one up entirely). The same reasoning applies in general that one uses dedcutions and credits that expire first like Medical expenses, before using things that can be carried forward, like RRSP deductions, donations,tuition. etc. You are never required to take a deduction/credit even if entitled to.
2. Both Medicare and Driver's license, while not a primary tie, indeed are particularly important to CRA in determining INTENT, since both are tied directly to where you live.
When your wife is no longer living in Canada, her driver's license wil become invalid, regardless of its expiration date (plus the fact that the requirement to keep address current would not be met). This would be particulary important in an insurance case, as a claim might easily be denied for driving without a license (even though a cop pulling her over might not catch such a subtelty, he should).
There are only a couple of states (IL, NJ) that will not grant a DL for those without an SSN. I would not make a blanket statement that TDs can't get DLs.
While the Feds allow you to bring in a car temporarily, your stae undoubtedly has regs that require you to plate the car within weeks of mioving, which in turn requires importation in most states. Again, living in US with a Cdnplated car is an insuarnce liability for you (even if you are granted coverage in US -- a claim would be denied).
Likewise any medicare coverage; Unless you make prior arrangemant with your province, indicating the temporary nature of your departure from the province, medicare ends the day you leave province for US. You should both be getting temporary medical insuarnce until your work medicla plan kicks in.
<i>nelsona non grata... and non pro</i>