Taxes while on AOS (Foreign Earned Income)

[chancecody 125]

Hi Everyone,

 

Just planning for 2022 Tax filing season (2021 Tax Year). I filed AOS Family-based married to a USC in July 2021. I entered the US in April 2021. I worked remotely for a Canadian company with no US presence and deposited to a CAD bank account from April 2021 to Nov 2021. I received my EAD in Nov 2021 and started working for a US company in Dec 2021.

 

1. I meet the IRS tax resident substantial presence test. Do I file as a nonresident alien for 2021 Tax Year? I am still on AOS.

2. Do I qualify for the Foreign Earned Income Inclusion? That is, I will pay Canada all the taxes for my Canadian remote work in 2021. I do not believe I will pay IRS the same tax in the US since double taxation is not allowed and I am a nonresident alien.

 

Did anybody have a similar experience in the past that you’d like to share? Thanks!

[JeanneAdil 6,514]

the company had no business in the US so can not furnish u with W2

you will pay Canadian taxes on that income/  no US foreign exclusion here as u were a resident alien as of April 2021 not a non resident alien

BTW you shouldn't have been working at all with no EAD 

as for the new US employer,   you will file for 2021 income on what is left of this year / you'll have a W2 for this US income

Edited November 7, 2021 by JeanneAdil

[chancecody 125]

6 minutes ago, JeanneAdil said:

the company had no business in the US so can not furnish u with W2

you will pay Canadian taxes on that income/  no US foreign exclusion here as u were a resident alien as of April 2021 not a non resident alien

BTW you shouldn't have been working at all with no EAD 

as for the new US employer,   you will file for 2021 income on what is left of this year / you'll have a W2 for this US income

Thanks for your response. True about no W-2….does this mean that I do not need to file with IRS my Canadian income while working remotely from April to Nov 2021? My employer allowed me to work remotely as long as they said I have to take care of IRS.

 

Note: yes, understood about not working remotely without EAD but I am married to a USC and I disclosed this in my I-485 under comments in “additional information”. I don’t expect this to be an issue in the interview. The interview office may ask me if I filed taxes on those income etc.

[JeanneAdil 6,514]

8 minutes ago, chancecody said:

Thanks for your response. True about no W-2….does this mean that I do not need to file with IRS my Canadian income while working remotely from April to Nov 2021? My employer allowed me to work remotely as long as they said I have to take care of IRS.

 

Note: yes, understood about not working remotely without EAD but I am married to a USC and I disclosed this in my I-485 under comments in “additional information”. I don’t expect this to be an issue in the interview. The interview office may ask me if I filed taxes on those income etc.

your employer was wrong 

to do business in  USA

you have to claim the income as Canadian 

he had no permit to do business here

 

Every business in the USA needs an Employer Identification Number (EIN) (also known as a Tax ID number) to start a business.

1. Open a U.S. business bank account.
2. Start a business.
3. Apply for business permits and licenses.
4. Hire employees.
5. File taxes.

[Redro 4,611]

 

17 hours ago, chancecody said:

Hi Everyone,

 

Just planning for 2022 Tax filing season (2021 Tax Year). I filed AOS Family-based married to a USC in July 2021. I entered the US in April 2021. I worked remotely for a Canadian company with no US presence and deposited to a CAD bank account from April 2021 to Nov 2021. I received my EAD in Nov 2021 and started working for a US company in Dec 2021.

 

1. I meet the IRS tax resident substantial presence test. Do I file as a nonresident alien for 2021 Tax Year? I am still on AOS.

2. Do I qualify for the Foreign Earned Income Inclusion? That is, I will pay Canada all the taxes for my Canadian remote work in 2021. I do not believe I will pay IRS the same tax in the US since double taxation is not allowed and I am a nonresident alien.

 

Did anybody have a similar experience in the past that you’d like to share? Thanks!

The form you usually complete to exclude foreign income when filing US tax returns is the 2555. 

You can read through the instructions here. https://www.irs.gov/pub/irs-pdf/i2555.pdf

 

Who Qualifies

You qualify to exclude your foreign earned income from gross income if both of the following apply.

• You meet the tax home test (discussed later). • You meet either the bona fide residence test or the physical presence test (discussed later).

However, see COVID-19 Emergency Relief, later. Note. Income from working abroad as an employee of the U.S. Government does not qualify for either of the exclusions or the housing deduction. Don't file Form 2555. Tax home test. To meet this test, your tax home must be in a foreign country, or countries (see Foreign country, earlier), throughout your period of bona fide residence or physical presence, whichever applies.

For this purpose, your period of physical presence is the 330 full days during which you were present in a foreign country, or countries, not the 12 consecutive months during which those days occurred. Note. If you did not live 330 full days in a foreign country, or countries, during a 12-month period, you are not entitled to claim the foreign earned income exclusion. The 330 qualifying days do not have to be consecutive.

 

 

 

[Wuozopo 4,293]

4 hours ago, Kor2USA said:

Who Qualifies

You qualify to exclude your foreign earned income from gross income if both of the following apply.

• You meet the tax home test (discussed later). • You meet either the bona fide residence test or the physical presence test (discussed later).

If he is a Canadian citizen, he meets the bonafide residence test to live and work in Canada. He doesn’t have to count days spent in Canada to qualify as a bonafide resident of Canada. 

[Redro 4,611]

8 hours ago, Wuozopo said:

If he is a Canadian citizen, he meets the bonafide residence test to live and work in Canada. He doesn’t have to count days spent in Canada to qualify as a bonafide resident of Canada. 

OP was working for a Canadian company whilst living in the States. 

Don't know if that changes anything. 

 

[Wuozopo 4,293]

12 hours ago, Kor2USA said:

OP was working for a Canadian company whilst living in the States. 

Don't know if that changes anything. 

 

I thought your post was referring to qualifying to use the foreign income exclusion Form 2555.
 

So for example, he files a 2021 return jointly with his USC spouse. They report their worldwide income for 2021- his, hers, while he was in Canada and while he was in US. The money he earned from Jan 1 to April x (while still in Canada working for a Canadian employer) can be excluded as Foreign Earned Income because he was indeed living/working in a foreign country for a foreign employer (CA). He must qualify on either “physical presence” in CA or “bonafide residence” in CA. I said he qualifies on bonafide residence if he was a Canadian citizen. He was allowed to live and work in Canada based on being a bonafide resident of CA. He has no need to count how many days he was present in CA for the physical presence test. 
 

Now once he physically lived in the US (April x to Dec 31) the money he was paid by the CA employer became subject to US tax. That’s a general worldwide view of how it typically works. However, I know that because CA and US are close neighbors, there are some special circumstances within their tax treaty on how taxes are handled. I do not know those details. The IRS even has a Publication dedicated to US/Canadian taxation. 
 

tagging @chancecody

Edited November 9, 2021 by Wuozopo

[Redro 4,611]

.

Edited November 9, 2021 by Kor2USA

[Redro 4,611]

I'll let @chancecody answer for themselves. 

Edited November 9, 2021 by Kor2USA

[chancecody 125]

8 hours ago, Wuozopo said:

I thought your post was referring to qualifying to use the foreign income exclusion Form 2555.
 

So for example, he files a 2021 return jointly with his USC spouse. They report their worldwide income for 2021- his, hers, while he was in Canada and while he was in US. The money he earned from Jan 1 to April x (while still in Canada working for a Canadian employer) can be excluded as Foreign Earned Income because he was indeed living/working in a foreign country for a foreign employer (CA). He must qualify on either “physical presence” in CA or “bonafide residence” in CA. I said he qualifies on bonafide residence if he was a Canadian citizen. He was allowed to live and work in Canada based on being a bonafide resident of CA. He has no need to count how many days he was present in CA for the physical presence test. 
 

Now once he physically lived in the US (April x to Dec 31) the money he was paid by the CA employer became subject to US tax. That’s a general worldwide view of how it typically works. However, I know that because CA and US are close neighbors, there are some special circumstances within their tax treaty on how taxes are handled. I do not know those details. The IRS even has a Publication dedicated to US/Canadian taxation. 
 

tagging @chancecody

Thanks all for your help! Below is what I found:

• I am considered a Nonresident Alien of the US for tax purposes because I do not meet the green card test. However, I pass the substantial presence test so I am a Nonresident alien (first link below).
• US and Canada have tax treaties. It is usually straightforward the other way around. For example, my USC spouse was a permanent resident in Canada but filed his taxes in both countries. He was able to use the Foreign Earned Income Inclusion for Income earned in Canada so he did not need to pay tax with IRS therefore avoiding double taxation.
• My case: I worked remotely for a Canadian company with no US presence while on AOS. I think I need to consult a Tax accountant that specializes in both countries. 

Did anybody have similar experience?

 

Note: not interested in people saying that you can't work remotely while on AOS etc. It is a non-issue in this case as I am married to as USC so the bar to adjustment does not apply.

 

https://www.irs.gov/individuals/international-taxpayers/determining-an-individuals-tax-residency-status

 

Edited November 9, 2021 by chancecody

[Redro 4,611]

44 minutes ago, chancecody said:

Thanks all for your help! Below is what I found:

• I am considered a Nonresident Alien of the US for tax purposes because I do not meet the green card test. However, I pass the substantial presence test so I am a Nonresident alien (first link below).
• US and Canada have tax treaties. It is usually straightforward the other way around. For example, my USC spouse was a permanent resident in Canada but filed his taxes in both countries. He was able to use the Foreign Earned Income Inclusion for Income earned in Canada so he did not need to pay tax with IRS therefore avoiding double taxation.
• My case: I worked remotely for a Canadian company with no US presence while on AOS. I think I need to consult a Tax accountant that specializes in both countries. 

Did anybody have similar experience?

 

Note: not interested in people saying that you can't work remotely while on AOS etc. It is a non-issue in this case as I am married to as USC so the bar to adjustment does not apply.

 

https://www.irs.gov/individuals/international-taxpayers/determining-an-individuals-tax-residency-status

 

 

You should definitely consult a tax accountant but looking at the link you provided: 

https://www.irs.gov/individuals/international-taxpayers/closer-connection-exception-to-the-substantial-presence-test

 

Even if you met the substantial presence test, you can still be treated as a nonresident alien if you:

• Were present in the United States less than 183 days during the year, and
• Had a closer connection during the year to one foreign country in which you have a tax home than to the United States

 

 

When You Cannot Claim Closer Connection to a Foreign Country

You cannot claim you have a closer connection to a foreign country if either of the following applies:

• You personally applied, or took other steps during the year, to change your status to that of a Lawful Permanent Resident, or
• You had an application pending for adjustment of status to Lawful Permanent Resident during the year.

 

 

[Wuozopo 4,293]

1 hour ago, chancecody said:

I am considered a Nonresident Alien of the US for tax purposes because I do not meet the green card test. However, I pass the substantial presence test so I am a Nonresident alien (first link below).

You can be a Resident Alien for tax purposes. Nothing to do with you immigration status which is not yet a permanent resident.  And even without physical presence in the US, one can elect to be treated as a resident alien for tax purposes because of marriage to a US citizen. That was my situation arriving in October on a K1. No greencard and lacking physical presence but elected to be treated as resident alien for our joint tax return that year. 

 

1 hour ago, chancecody said:

US and Canada have tax treaties. It is usually straightforward the other way around. For example, my USC spouse was a permanent resident in Canada but filed his taxes in both countries. He was able to use the Foreign Earned Income Inclusion for Income earned in Canada so he did not need to pay tax with IRS therefore avoiding double taxation.

Exact same concept on your taxes now. You just have to flip your brain a little and think of yourself as American (for tax purposes). You are now (or can be) a “US person” for taxes. That’s an IRS term. The time from Jan to April you worked in a foreign country, Canada. (Same as your spouse worked in a foreign country). You had the qualifications to work there because you are a citizen, while he had a residency status in Canada.(Bonafide residence in CA).  You use the Form 2555 to exclude the income earned while you were working in Canada because you owed taxes to Canada just like he did. You don’t pay both places on the same money.
 

Now if your CA employer has continued to hold out Canadian tax money from April after you moved,  you can get IRS tax credit for the foreign taxes paid using form 1116. See https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit.

So your year is split based on residence.

• Pay Canada Jan-April  and get IRS to exclude your earned income from taxes (Form 2555) 
• Pay US remainder of year on the money earned from a Canadian employer. But if you already had CA tax held out for the American part of the year, you can claim a credit toward your US taxes using Form 1116. What you can’t do is somehow get back the Canadian tax money on your Canadian return for the American part of the year and then ask the IRS to credit you for taxes you paid to Canada. That would be like “double dipping”.

1 hour ago, chancecody said:

My case: I worked remotely for a Canadian company with no US presence while on AOS. I think I need to consult a Tax accountant that specializes in both countries. 

Tax consultant is great idea.  However you need to understand even if your employer has no presence in US and you were paid into a Canadian account, your tax liability can still be based on where you lived…where your stuff is and where you go to sleep every night. Especially true if you plan to file a joint 1040 with the spouse, which is often the better deal. 
 

Your could also choose “dual status” taxpayer where you’re 1040NR part year and 1040 part year but NR taxpayers pay a higher tax rate, can’t file jointly, and don’t get some perks of RA taxpayers with USC spouses. 
 

IRS Publication 519 U.S. Tax Guide for Aliens, is a good long read that will tell you more than you ever wanted to know.   https://www.irs.gov/pub/irs-pdf/p519.pdf  

 

 

Edited November 10, 2021 by Wuozopo