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My Question is: Applicable to both US and Canada
QUESTION: Hi Dave,
Great website! I am a US citizen and a permanent resident of Canada (as of May 30th), but I still work for a US company (in Illinois).
They are taking out federal and state tax from my paycheck now. I know I need to file in the US and but what forms would I fill out in Canada.
Thanks,
JXXXXXXX
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david ingram replies:
You can thank your lucky stars that you started looking or you would be in
deep deep doo doo come tax filing time.
Your employer is doing you a great disservice at the moment and you should pass this on to the payroll people as soon as possible. If they need to, they can phone me at (604) 657-8451 (cell) or (604) 913-9133 at the office.
I accept calls seven days a week on the cell from 9 AM to 10 PM Los Angeles or Vancouver time whick means noon to 1 AM Toronto or New York time.
1. When you left Illinois, your employer should have stopped making deductions for Illinois. The most amateur US payroll clerk should know that fact. If you had moved to California or New York or Minnesota, they would stop Illinois and make the proper state tax deduction.
2. In this case, you are living and working in Canada. aklthough you still have to file a US 1040 and might have to pay a little AMT to the states if your income is over $120,000 US, essentially, your tax liability on your Canadian earnings to the US stopped when you crossed the border and earned over $10,000 Canadian.
3. You are paying FICA (social Security and medicare) taxes to the US when your tax liability for Social Security is to Canada UNLESS your employer has transfered you for less than five years and has written to the Social Security Adminsitration and "asked specifically" for permission to
exempt you from the rules of the Canada US Social Security Agreement.
4. YOUR EMPLOYER HAS TO:
A establish a Canadian Payroll acoount and deduct Canadian Federal and provincial and Canada Pension Plan Payments OR
B move you to self employed and pay you your gross PLUS THEIR SHARE OF BENEFITS to you on a 1099 MISC. You would then file in Canada as a self-employed person and pay your taxes to Canada plus both halves of the
Canada Pension Plan.
GOTO www.centa.com and click on [US / Canada Taxation] for more information plus a copy of ARTICLE IV (2) of the US/Canada Income Tax Treaty.
In Canada, you will file yourself on a T1 tax form.
Before you file your US return, you will file a Form 2350 which you can find at : http://www.irs.gov/pub/irs-fill/f2350.pdf
This form will entitle you to extrend the filing of your 2003 US return until Jan 20, 2005 so that you qualify for the "Bone Fide Residence" rules found associated with Form 2555 which allows the exemption of up to $80,000 US of foreign earned income when you have lived out of the US for an entire Calendar year. You will also see a 330 day out of 365 rule but DO NOT USE THAT one unless you move back to the US in May or June 2004. It limits you to exactly what it says and you have to apply the rule for five years once you claim it.
Therefore claiming under the 330 day rule means you cannot spend more than thirty days in the US per year for the next five years if you want your Canadian income to be exempted from US tax.
You can find the 2555 form at http://www.irs.gov/pub/irs-fill/f2555.pdf
You will need competent help. We can do phone consultations at $350 per hour Canadian if you cannot get to us.
Hoping this helps, I remain
David Ingram of the CEN-TA REALTY Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any
and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist in connection with personal or business affairs such as at www.centa.com. If you forward this message, this
disclaimer must be included."
Be ALERT, the world needs more "lerts"
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