Taxation of Canadians in the U.S.

• A Foreign Alien is anyone who is not a U.S. Citizen (Refer to our notes on residency determination).
• A Foreign Alien will fall into one of the following categories for U.S. tax purposes depending on the facts:

Non-Resident Alien

• • Are required to file a form 1040NR.
  • The residency determination is done in a separate topic (refer to our notes on residency determination). 
  • Must use single or married filing separate status.
  • Canadians will be able to claim exemptions for children and spouse.
  • A non-resident alien is subject to tax on U.S. source income only. Income is considered a U.S. source it is earned through an activity or investment in the U.S.
  • A U.S. source income is classified as “income not connected with a U.S. business” or “income effectively connected with a U.S. trade or business”. They both are taxed at different rates.

Resident Alien

• Are required to file a form 1040.
• If one of the married taxpayer is not resident in the US for the full calendar year, an election can be made to treat him/her as a full year resident of the U.S. (6013 (g) and 6013 (h))

Dual-Status Alien

• Two tax returns are required to be filed.
• In the year of arrival, 1040 is the return and 1040NR is the statement.
• In the year of departure, 1040NR is the return and 1040 is the statement. Married filing jointly return is not allowed to be filed.