Understanding the Substantial Presence Test and Form 8840 for Canadian Snowbirds in the United States

Understanding the Substantial Presence Test and Form 8840 for Canadian Snowbirds in the United States

The current discussion topic pertains to the number of days “Snowbirds” can spend in the U.S. and when form 8840 should be filled out. This subject, touching on both immigration and taxation, has significant implications for those who frequently travel between Canada and the U.S.

Length of Stay in the U.S.: The Importance of 182 Days for Immigration

Starting with the basics and not considering different visa types, most Snowbirds simply travel with their Canadian passport. From an immigration standpoint, it’s advised never to exceed 182 days per year in the U.S. for two main reasons. Firstly, a passport allows one to stay in the U.S. for 182 consecutive days, after which a visa is required. While it is possible to return to Canada and then go back to exceed this limit, it’s important to note that Quebec health insurance requires the individual to spend at least 183 days per year in the province to remain covered. This threshold is slightly lower in Ontario and Newfoundland. These limits mainly concern immigration.

Tax Implications in the U.S. for Snowbirds: Understanding the Substantial Presence Test

In terms of taxation, and this is the most crucial part here, tax residency in the U.S. is determined by the “Substantial Presence Test”. Many Snowbirds are unaware of this test, but it’s vital to understand and address it since it’s relatively straightforward to handle and can provide significant protection.

Calculation of the Substantial Presence Test: How to Avoid Double Taxation

Here’s how the test works:

• Take the total number of days spent in the U.S. in 2022.

• Add one-third of the number of days spent in the U.S. in 2021.

• Add one-sixth of the number of days spent in the U.S. in 2020.

For instance, let’s assume an individual spends four months, or 120 days, in the U.S. each year. By adding 120, 40, and 20, the total comes to 180. If this total exceeds 182 days, which is the case for those who spend more than four months every year in the U.S., the IRS could decide to consider this individual as a U.S. tax resident and thus tax their global income. In practice, this would mean that the individual would be taxed in Canada as they already are, but the IRS would also want its share. This could lead to double taxation.

The Importance of Form 8840 for Canadians in the U.S.

To avoid this scenario, one simply has to file form 8840 by April 15th of each year if the previously described calculation exceeds 182 days.

Closer Connection Exception Statement for Aliens: Snowbirds’ Tax Defense

Form 8840, titled “Closer Connection Exception Statement for Aliens”, is easy to fill out and allows one to declare to the IRS that, despite substantial presence in the U.S., the individual primarily remains a resident of Canada. Essentially, the form explains to the IRS why the individual should only be taxed in Canada and not the U.S.

Exclusions from the Substantial Presence Test Calculation: Workdays, Transit, and Medical Reasons

It’s worth noting that in this calculation, any workday or transit day shorter than 24 hours in the U.S. can be excluded. Similarly, any day spent in the U.S. for medical reasons, provided that the medical condition developed in the U.S., can also be left out.

Clarifications on ITIN and Form 8840 for Snowbirds

In conclusion, and to answer a common question, it’s not necessary to have an ITIN to fill out this form. However, if an ITIN is available, it should be included on the form. Moreover, if a U.S. tax report is filed, the form should be attached to that report and not sent separately.

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