2008 US TAX FILING

Hello,

I currently commute from Windsor, ON. to Warren, MI. and back everyday.
I am employed by a Canadian company and receive compensation in canadian dollars direct deposited to my Canadian bank account.

I have less than 183 days of working in Warren.
Do I have to file for a US tax return?

TIA!

roacan

Mmm, under the tax treaty if you work in the US for more than 183 days a year OR receive more than $10,000 in compensation while working in the US you have to pay taxes in the US which obviously implies that you have to file a US tax return. However the obligation here is largely on your employer, because if they have employees who spend more than 183 days in the US or earn more than $10,000 while there, they're supposed to register as a US employer, do US payroll tax withholding, and issue you a W-2 for the portion of your salary paid to you while you were in the US.

The 2008 tax treaty also requires proportional payment of taxes although I haven't seen any clear guidance on how that works yet, essentially though if your employer has a "permanent establishment" in the US, which means an office manned more than 183 days a year, or where more than 50% of the company's work is performed, then they must be registered with the IRS and do payroll withholding for all the workers who work there while they are in the US.

So to cut a long story short the obligation is on your employer to comply with US tax laws. If they don't issue you a W-2 or do US payroll withholding, filing a 1040NR would be rather messy because your income doesn't appear to be US-source.

I think your first port of call would be to talk to the company you work for and see whether they're aware of all this.

IRS publications 515 and 597 contain more information for employers, although it is significantly out-of-date now due to the new tax treaty provisions.

There are specific exemptions for people who work in the transport industry, if that's what you do.

Hello,

Thanks for the reply.
Just to add more info, the company I work for is based in Windsor On. and our customer is also based in Windsor Ontario. The cusomer of our customer is based in Warren which requires me to go there to perform my work then go back home to Windsor.

Now, my company just recently opened a US office but I am officially employed by the Canadian office. I just go to the customers site and I have not done any work on the US office.

Canadian tax are deducted on my pay check. My boss have not arranged anything regarding taxes for the US.

In addition, I am a TN visa holder under "Industrial Designer"

Basically it boils down to how much you're paid, if you perform work in the US that you get paid more than $10,000 for, then your employer should be registered in the US as an employer and you should be on that payroll. Then you'll get a W-2 which you use to complete your 1040NR and T1, and then you would claim a foreign tax credit in Canada with your T1 so you only pay the tax once.

Presumably someone in the US gave you the job letter to get TN-1, so you should be on their payroll really. You don't absolutely have to be in this arrangement because they can sponsor you for TN-1 for you to do the work for them while someone in Canada pays you - until you get past the exemption in the tax treaty which is 183 days or $10,000.

The best solution is probably for the US office of your employer to sponsor your TN-1, and you go on the payroll of the US office. So you would effectively be on two payrolls and get a W-2 and a T4 at the start of the year.

I'm afraid it's always complicated when you work in two countries during the year and earn significant amounts of money.

Wait until you work out your RRSP contribution!

Hello Steven,

Thank you very much for taking the time to reply to my queries.

I am making over $10,000.
That means I have to pay taxes on both Canada and the US.

Am I loosing out by paying more taxes because I worked in the US instead of in Canada?

If let's say I am supposed to pay $30,000 in Canada for taxes.
Now, since I have to pay taxes in the US too, I think in proportion to what I make multiplied by the fraction of how long I worked in the US (165 days/365 days). If I have to lets say pay $10,000 in US taxes,
I can use this as a deduction in Canada so that I would only need to pay $20,000 in Canadian taxes ?

I know there is more to this like the exchange rate and other deductions stuff. But basically, am I correct?

Steven,

You were right about the TN.
When I applied for the TN visa (2007), I have a letter from the US office of our customer. When I applied again for a TN Visa(2008), this time I used the letter from our US office.

How it works basically if you live in Ontario is that you still effectively pay the sum of Ontario taxes.

When you get your W-2 from the US office you will have US FICA withholding, this will be lower than the withholding rate on your T4 because tax rates in the US are lower. You use the W-2 to complete your T1 and declare your income, so you will have to pay the Canadian/Ontario taxes on that income listed on the W-2.

With your T1 you claim a foreign tax credit for the taxes you paid in the US, which reduces the amount of tax you pay in Canada by the same amount (use the exchange rates from www.bankofcanada.ca for the dates you were paid).

When you sum it all up basically you are still paying the same amount as you would if all the work had been done in Canada, assuming you're paid at the same rate in both countries.

You also have to file a US tax return, a 1040NR and you declare your US-source income from your W-2 on that also.

The general guide for the T1 explains how to file for a foreign tax credit.

Your problem is that you haven't got a W-2 because your employer hasn't complied properly with US tax law from the sounds of it - you should have been put on the payroll of the US office. Whether it's worth bothering at this point is something your employer will have to discuss with the IRS, but obviously for 2009 you need to go on that payroll to prevent it from happening again.