Am I a resident or non-resident for US tax purposes?

[nickyfoficky]

I have filed US tax returns from 2003-2007 as a non-resident, as I was exempt from the substantial presence test as an F-1 student. My understanding from publication 519 is that you can only claim exemption for 5 years. I was on an F-1 visa during 2008. I graduated May '08, and used OPT for the rest of the year.

Am I a resident for US tax purposes? Do I simply file form 1040? I was going to do this, but am now confused and concerned regarding residential ties, etc. I am going to be in the US until May of 2010, and quite possibly longer.

I received a form 1042-S, and am unsure what to do with it - they withheld money.

I've received the following tax forms: W-2 (3), 1099-Misc, 1042-S and 1099INT.

Will this threaten my current P-2 visa or future applications?

I have a savings account in Canada - can I still file as a resident in Canada as well?

Whew...

Any help would be much appreciated!

[Steven]

You can file non-resident for as long as you want because of the tax treaty, the only difference is that you have to have the FICA taxes withheld from your pay.

How it works is if you file Form 8843 for five years running (which could mean four years and one day) as F-1 then you have to then start having FICA taxes withheld after that and you have to tell your employer by filing a new W-4 with them.

If you're on P-2 then you can't use Form 8843.

I have to say I find this to usually be an academic discussion as few people who file 8843 seem to be aware of the fact they're exempt from FICA withholding and their employers are never aware. The instructions for employers on this subject are incredibly obscure, they're hidden away somewhere in IRS publication 515.

Essentially what you're supposed to do is put down: "non-resident alien student" in the answer to question 6 on W-4 and your employer is supposed to divine from that not to perform FICA withholding. If they do, you can file Form 843 to recover it.

Most students don't realize this until years later in my experience.

However you can still file as non-resident after that, you just don't file Form 8843 anymore with your 1040NR. You may be required to formally claim the tax treaty provisions on Form 8833, you need to ask the IRS but usually if your income is fairly low they waive that requirement.

As a Canadian you're not subject to non-resident alien withholding so whomever issued the 1042-S made a mistake. To recover it you need to report it on your 1040NR and get a refund from the IRS.

Make sure with banks etc. ("income not effectively connected with a US trade or business") that you've filed a W-8BEN with them and declared your Canadian status to them.

The people issuing you the 1099s also made a mistake, they should be 1042-S instead (usually, there are exceptions) but generally it doesn't matter because as a Canadian you're not subject to withholding, it's just a paperwork error.

If you're filing as a US non-resident, that means you're a Canadian resident, so you have to file T1 etc. in Canada. You use your W-2s, 1099s etc. to do this, you claim a foreign tax credit using T2209 and T2036 as described in the general guide. Which will usually mean you owe tax as the Canadian rates are higher (usually, if you're in a low bracket in Alberta you may not owe much).

Your slight wrinkle is that you're waiting on a tax refund for the 1042-S so you can either wait or figure out what the refund will be and reduce your foreign tax credit claim by that much. I.e. do 1040NR first and figure out your refund.

[nickyfoficky]

Thanks for all your help! I've always found the tax treaty confusing, and have been reading Pub.901 and getting help from Table 2 (couldn't display link)

I'm planning on filing as a non-resident, and have a few questions pertaining to your response and about the 1040NR.

One of my employers didn't withhold FICA - do I have to take steps to correct this?

I've never filed a W8-Ben. I made less than $30 on a savings account. Is there a way to correct this mistake?

Now the 1040NR and tax treaties....

Some states withheld tax, and some jobs also withheld federal tax. Do I have to file state tax returns to get that money back?

I'm a musician, and some of my jobs include performing, but I think I may be able to claim them as dependent personal services (I received W-2's, was considered an employee, not an independent contractor), or personal entertainment. My question is can I claim some jobs as dependent personal services (W-2's) and some as personal entertainment (1099, 1042-S). I've made over 15,000, so I know that I can't claim them all under personal entertainment.

My last question pertains to the 10,000 maximum amount of compensation for Dependent Personal services. Since I made over this amount do I put 10,000 in box 6 of the 1040NR and the difference in box 3, or since my total income is over this, is none of the income exempt and I can only take off the regular 3,500 from my income? I'm hoping not to owe much in taxes, since some employers didn't withhold any federal tax!

If these questions seem too confusing, does anyone out there have the contact info of an accountant who is well versed in these matters?

Thanks!!!

[Steven]

One of my employers didn't withhold FICA - do I have to take steps to correct this?

If you were directly employed and were on F-1 and filed an 8843 then no, on P-2 then yes. If you got a W-2 without FICA withholding and you filed a W-4 properly then your employer made a serious error, phone the IRS.

I've never filed a W8-Ben. I made less than $30 on a savings account. Is there a way to correct this mistake?

File a W-8BEN with the bank so it doesn't happen again, use the 1042-S to get the withholding back from the IRS, basically you overpaid taxes so you can sort it out on your 1040NR, it sounds like a trivial amount so you may end up owing a little bit of tax somewhere else on the return so you can just reduce the amount owing, or get a refund.

Some states withheld tax, and some jobs also withheld federal tax. Do I have to file state tax returns to get that money back?

Well you may have to file a State return, but you can't get it back if you were employed there, you have to file for a Provincial foreign tax credit in Canada.

I'm a musician, and some of my jobs include performing, but I think I may be able to claim them as dependent personal services (I received W-2's, was considered an employee, not an independent contractor), or personal entertainment. My question is can I claim some jobs as dependent personal services (W-2's) and some as personal entertainment (1099, 1042-S). I've made over 15,000, so I know that I can't claim them all under personal entertainment.

I'm not that familiar with the personal entertainment provisions of US tax law, but I'm not sure what difference this makes to filling in your tax return because you've got all the slips. I think you can be subcontracted on P-2 so there's no legal reason why you wouldn't get a 1042-S. You should have given the person paying you a completed 8233 so they didn't do withholding on the 1042-S, but if they gave you a 1099 it's a fairly moot point.

My last question pertains to the 10,000 maximum amount of compensation for Dependent Personal services. Since I made over this amount do I put 10,000 in box 6 of the 1040NR and the difference in box 3, or since my total income is over this, is none of the income exempt and I can only take off the regular 3,500 from my income? I'm hoping not to owe much in taxes, since some employers didn't withhold any federal tax!

The amount of tax you owe in the US is pretty much academic, because at best all you will do is reduce your foreign tax credit in Canada and end up paying more tax in Canada. At the end of the day you effectively pay the Canadian rate, the only question is how the bill is split between the US and Canada.

If I follow your question correctly you don't qualify for the $10,000 exemption because you earned over it, that is a specific provision in the tax treaty which is explained (very poorly) in IRS publication 597. Once you're over it, it doesn't apply anymore. So yes, you owe income tax on that full amount or any other taxes that apply to it, minus deductions like the single person exemption. But like I said, it merely increases the size of your foreign tax credit in Canada, you will end up paying the same amount of tax overall.