What You Should Know About the U.S. 183-Day Rule

You must spend fewer than 183 days in a calendar year in the U.S. to be considered a non-resident of the U.S. But what rules must be followed?

Quebecers who spend winter in the southern U.S. are aware of the criteria of the Substantial Presence Test (183-day presence over three years) and Form 8840, which allows them to be considered a non-resident of the U.S. In order to meet the criteria for this form, taxpayers must have spent fewer than 183 days in the U.S. during the year.

However, if you spend 183 days or more in the U.S. during a calendar year, you may be considered a U.S. resident for income tax purposes even if you don’t have legal residence status (green card) or American citizenship. This could create significant tax implications, which include the following.

Income tax

As a tax resident of the U.S., you will be required to report your world income to the U.S. tax authorities and pay taxes on this income whether you earned it within or outside the U.S.

Tax treaty

Canada and the U.S. signed a tax treaty that overrides this U.S. law. As a result, under Article IV of this treaty, you may be considered a Canadian resident rather than a U.S. resident for tax purposes if your primary or secondary ties are closer to Canada.

Income tax return

In such cases, you will be required to file a U.S. federal income tax return (Form 1040-NR) along with Form 8833, which allows you to avail of the provisions of this tax treaty. In addition to this declaration, you must also file several U.S. information forms (Forms FBAR, 5471 and 3520/3520-A, for example) for assets you hold outside the United States. If you fail to file these forms, you could be subject to penalties of $10,000 for each unfiled form.

Individual Taxpayer Identification Number (ITIN)

In addition to filing a U.S. tax return, taxpayers must also obtain an ITIN (Individual Taxpayer Identification Number). Your application for an ITIN must be submitted with a copy of your passport certified by Passport Canada or an acceptance agent.

Please note that Raymond Chabot Grant Thornton is accredited by the U.S. tax authorities to certify Canadian passports.

If you expect to spend more than 183 days of a calendar year in the U.S., you should plan your tax situation accordingly and consult an international tax expert to fully understand your tax obligations and explore strategies to reduce your tax burden.