Welcome back to Canada! As the snow melts and our "snowbird" clients return from Arizona, Florida, and California, it is time to address the tax implications of your winter getaway. If you spend significant time south of the border, you need to be aware of the IRS Substantial Presence Test.
If you overstay your welcome in the eyes of the IRS, you could accidentally become a U.S. resident for tax purposes, subjecting your worldwide income to U.S. taxation.
The 183-Day Formula
It is not as simple as spending less than 183 days in the U.S. in a single year. The IRS uses a weighted average formula looking back over the last three years:
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All the days you were present in the current year.
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PLUS 1/3 of the days you were present in the previous year.
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PLUS 1/6 of the days you were present in the year before that.
If the total of this calculation equals 183 days or more, and you were in the U.S. for at least 31 days in the current year, you meet the Substantial Presence Test.
The Solution: Form 8840
If you meet the test but maintain a closer connection to Canada (i.e., your permanent home, family, driver's license, and health coverage are here), you can avoid being taxed as a U.S. resident.
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You must file Form 8840 (Closer Connection Exception Statement) with the IRS.
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Deadline: This form is due by June 15th for the previous tax year.
The Bottom Line
Filing Form 8840 acknowledges your time in the U.S. while claiming an exemption from U.S. tax residency. Failing to file this form can lead to penalties and a determination that you are a U.S. resident, which complicates your tax life significantly.
This blog was written using the assistance of AI.
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