As a Canadian resident who winters in the U.S., you may be considered a ‘U.S. person’ and technically subject to U.S. income tax on your worldwide income if you spend a certain number of days in the United States over a three year period.
A ‘U.S. person’ is defined as a U.S. citizen or a U.S. resident, and a ‘U.S. resident’ (‘resident alien’) includes anyone who holds a green card or meets the Substantial Presence Test.
Substantial Presence Test
You are considered a resident alien of the U.S. if you spent 31 days in the U.S. in the current year and 183 days during the 3-year period that includes the current year and the 2 years immediately preceding, calculated by adding:
- All the days spent in the U.S. in the current year
- 1/3 of the days spent in the 1st year preceding
- 1/6 of the days spent in the 2nd year preceding
Example
You spent 120 days in the U.S. in 2023, 120 days in 2023 and 60 days in 2021.
= # of days in 2023 + 1/3 of days in 2022 + 1/6 of days in 2021
= 120 + 40 + 10
= 170 days
In this case, since the total for the three-year period is 170 days, you would not be considered a resident alien in 2023 under the Substantial Presence Test and no U.S tax filing is required.
Exception to the Substantial Presence Test
If you do meet the Substantial Presence Test, you may still be treated as a non-resident for tax purposes if you qualify for the ‘Closer Connection Exception’. The Closer Connection Exception considers if you have maintained more significant ties to Canada than the U.S. and, if so, should be treated as a Canadian resident for U.S. tax purposes.
You are eligible to claim this exemption if you:
- were present in the U.S. for no more than 182 during the tax year in question, and
- established a tax home in Canada during the tax year in question, and
- had a closer connection to Canada than the U.S. in the tax year in question, and
- have not taken any steps toward (or have an application pending for) a green card.
To claim this exemption, you need to file Form 8840 (Closer Connection Exception Statement for Aliens) with the IRS by June 15th of the year following the year in which you qualified as a U.S. resident for tax purposes.
Note: There are also exemptions available for students, teachers and diplomats, and for someone unable to leave because they develop a medical condition while in the U.S.
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