Triple country jeopardy

[triplecountry]

I have a unique (at least I think) situation. I am hoping someone can answer my questions.

I am a Canadian citizen in the US on a TN. In the US, I have been filing 1040. In Canada, taxes are deducted at source on any income from investments and I receive NR4 forms to use for filing US taxes.

I have made plans to go to India for an extended period (many months) to spend time with family. I do not hold an Indian passport, but I hold a certain kind of visa status (given to people of Indian origin) to live and work in India indefinitely. First part of next year, I plan to return to Canada.

My current employer in the US has asked me to work remotely from India for few months to finish up some projects.

Questions -

1. Do I need to file a sailing permit before leaving the United States?
2. Do I need to make any changes to tax withholding status in the US? Does working remotely from another country subject me to some higher tax withholding?
3. For tax year 2008, do I need to file 1040NR? Or can I file 1040?
4. If I need to file 1040NR, what happens to the taxes withheld from my pay for the amount of time I remotely worked for the US employer? Can I claim them back?

[Steven]

Essentially your tax home is the US, so you are treated the same as any other US resident going overseas to work. You'd have to comply with Indian tax laws and claim the tax treaty exemption in India so you don't pay taxes there. Then you carry on filing a tax return in the US for your income from your US employer, who will still issue you a W-2.

Whether you file 1040NR or a 1040 depends on how much time you spend outside the US, i.e. whether you are still considered a resident for tax purposes and have ties there. But at the end of the day you are paying taxes in the US which is the relevant point, on the same basis as if you were physically there.

Talk to the IRS non-resident dept., eventually you might get hold of someone there who has a clue, although the instructions for the 1040NR are pretty good (but long).

Being Canadian is fairly academic because you are already filing a 1040 in the US and from the sounds of it you have no residential ties in Canada.

[triplecountry]

Thanks.
Have you heard of 1040-C/Sailing permit required to be filed by Canadians leaving the U.S?

[Steven]

You don't need to do it as presumably you're still going to pay tax in the US, but read the instructions.