Canada US Dual Citizenship And U.S. Citizens Living Abroad Canadian and U.S. Tax Issues

I am a U.S. citizen. If I move to Canada to live and work there as a Canadian permanent resident, do I pay both U.S. and Canadian Taxes?

United States citizens living abroad are required to file annual U.S. income tax returns and report their worldwide income if they meet the minimum income filing requirements for their filing status and age.

You must contact the Canadian Government to determine whether you must file a Canadian tax return and pay Canadian taxes.

For the United States income tax return, you will have several options available to you regarding claiming a foreign tax credit or excluding some or all of your foreign earned income.

I am a Canadian citizen living and working in the U.S. for a U.S. employer on a visa.

Do I need to file both a U.S. tax return and a Canadian tax return?

You must comply with both U.S. and Canadian filing requirements, if any. In the United States, you generally are required to file a return if you have income from the performance of personal services within the United States.

However, under certain circumstances, that income may be exempt from payment of U.S. tax pursuant to the U.S.-Canada income tax treaty. You need to determine what type of visa you have, and how that impacts your residency status in the United States.

If, based on the tax code and your visa status you are treated as a U.S. resident, then your entitlement to treaty benefits will be impacted. You must contact the Canadian government to determine whether you must file a Candian tax return and pay Canadian taxes.

Are the Canada Pension Plan and Canadian Old Age Security Benefits taxable? If they are, please tell me where they should be entered on Form 1040.

Benefits paid under the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) program to a U.S. resident are taxable, if at all, only in the United States.

According to the U.S. - Canada income tax treaty, taxation of these benefits is based on residence. U.S. citizens or green card holders who reside in Canada are not subject to U.S. tax on this income.

These Canadian benefits are treated as U.S. social security benefits for U.S. tax purposes. Thus, under section 86 of the Internal Revenue Code, the portion of the benefits that is taxable will depend on your income and filing status.

If your modified adjusted gross income is above certain limits, a maximum of 85% of your benefits will be subject to U.S. tax. Refer to Tax Topic 423 for information about determining the taxable amount of your benefits.

Any benefit under the social security legislation of Canada that would not be subject to Canadian tax if paid to a resident of Canada is not subject to U.S. tax.

Canadian benefits that are treated as U.S. social security benefits are reported on line 20a and 20b of Form 1040, U. S. Individual Income Tax Return or line 14a and 14b of Form 1040A.-

13.2 Aliens and U.S. Citizens Living Abroad: Exchange Rate

Is there an Internet site with the exchange rates to convert foreign currencies to American dollars?

You can obtain currency exchange rates at the Federal Reserve Board web sites.

Federal Reserve Board

13.3 Aliens and U.S. Citizens Living Abroad: Foreign Income & Foreign Income Exclusion

What is foreign earned income?

Is it income from a foreign source or income paid by a U.S. company while living abroad?

Earned income is pay for personal services performed, such as wages, salaries, or professional fees.

Foreign earned income is income you receive for services you perform in a foreign country during a period when your tax home is in a foreign country and during which you meet either the bona fide residence test or the physical presence test.

It does not matter whether earned income is paid by a U.S. employer or a foreign employer. Foreign earned income does not include the following amounts.

The previously excluded value of meals and lodging furnished for the convenience of your employer.
 
Pension or annuity payments including social security benefits.
 
Payments by the U.S. Government, or any U.S. government agency or instrumentality, to its employees.
 
Amounts included in your income because of your employer's contributions to a nonexempt employee trust or to a nonqualifying annuity contract.
 
Recaptured unallowable moving expenses
Payments received after the end of the tax year following the tax year in which you performed the services that earned the income.

Do I have to meet the 330-day presence test or have a valid working resident visa to meet the requirement for foreign income exclusion?

To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:

A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty with a nondiscrimination article in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

U.S. tax law does not specifically require a foreign resident visa or work visa for this purpose, but you (must/should) comply with the other country's laws.

I am a nonresident alien. Can I take the foreign earned income exclusion if I meet the bona fide resident test or physical presence test?

If yes, what is the tax form used for nonresident taxpayer?

No, nonresident aliens do not qualify for the foreign earned income exclusion. Only if you are a U.S. citizen or a resident alien of the United States and live abroad, may you qualify to exclude up to $80,000 of your foreign earned income for 2004. But, if you are the nonresident alien spouse of a U.S. citizen or resident alien, you can elect to be treated as a U.S. resident in order to file a joint return.

• If you need legal assistance with an Immigration Problem, please consult with an Immigration Lawyer near you to discuss the details of your case. This website is for informational purposes only.