Remote Work while still under AOS and no EAD

[wingfield 3]

I need some help with the complex situation that I created by working remotely for a foreign company in Canada while still on AOS from B2 living in the US without EAD. I am married to a USC so no need to chastise me about working remotely for a foreign company without EAD as it is irrelevant and will be forgiven in my AOS. This is a tax question.

 

Facts in the Case

• Married to a USC and filed I-485 in May 2021 (from B2 Visitor status from Canada)
• Resident Alien under Substantial Presence Test (200+ days in the US in 2021).
• No EAD in 2021 and worked 100% remotely for a Canadian company with no US ties (no W-2). Received my EAD in January 2022.

 

Question:

For simplicity reasons, let's assume that my income was $100K in Year 2021, all earned and taxed in Canada. 7 months of this income was "earned" while I was on US soil under AOS without EAD. Do I have to file for US taxes in 2021? If so, how without W-2? I would like to file but the tax consultant that I visited said no need.

 

Thanks.

Edited April 2, 2022 by wingfield

[Crazy Cat 41,884]

Seems odd to me.  Did your consultant explain why there is no need to report your income?  

 

https://www.goldinglawyers.com/substantial-presence-test-irs/#:~:text=Anyone who meets the IRS,file a 1040 Tax Return.

 

 

Edited April 2, 2022 by Crazy Cat

[wingfield 3]

24 minutes ago, Crazy Cat said:

Seems odd to me.  Did your consultant explain why there is no need to report your income?  

 

https://www.goldinglawyers.com/substantial-presence-test-irs/#:~:text=Anyone who meets the IRS,file a 1040 Tax Return.

 

 

Thanks CrazyCat for that reference. The advice came from a local H&R Block tax consultant which I doubted that's why I came here. He said because I do not have a W-2 so I can't report it. He said it is because I am a remote worker to a foreign company that has no US presence etc. IRS would not know etc etc. 

 

Does anybody have any idea how I can report this Canadian income without W-2?

[Wuozopo 4,293]

5 hours ago, wingfield said:

Question:

For simplicity reasons, let's assume that my income was $100K in Year 2021, all earned and taxed in Canada. 7 months of this income was "earned" while I was on US soil under AOS without EAD. Do I have to file for US taxes in 2021? If so, how without W-2? I would like to file but the tax consultant that I visited said no need.

 

There are various ways to do your taxes. I’ll explain one way which would be a joint return with your spouse. You need to get your SSN.

 

You pay the US for the seven months in the US. You can be considered a contractor (self employed) on your tax return. That will be gross income reported on Schedule C. You can also take any business deductions allowed. You also need to pay your own Social Security and Medicare when self employed figured on Schedule SE. 

 

For the income earned while in Canada, TurboTax wants that entered under “Less Common Income” where you find “Foreign Income”.  The one time I tried H&R software, they wanted it entered with a “substitute W2” as regular income. Either way, the software entered it on the wages line of the 1040.  It is your gross income for those first five months that are reported as wages. The other seven months are not wages, they are self employment income (Schedule C).Software can vary on how they collect your info but the Canadian five months would be reported on Line 1 while the self employed seven months would end up going from Schedule C to Schedule 1 Line 3 to the 1040 Line 8.   Line 8 is a sum of things entered on Schedule 1.
 

For the five Canadian months reported as income, you could use the Foreign Earned Income Exclusion Form 2555 to exclude US taxation on that money.  
 

For the seven US months you likely had Canadianan taxes held out of your checks,  you can get a credit for the tax paid to Canada using form 1116. Only for those seven months, not the full year if you use the Foreign Earned Income Exclusion for the five months in Canada.

 

A statement from your Canadian employer with a breakdown of how much you earned and how much was withheld for taxes would be helpful to have all the correct amounts. You do not submit anything from your employer with the tax return. It would be for your records only.

Edited April 2, 2022 by Wuozopo

[wingfield 3]

3 hours ago, Wuozopo said:

There are various ways to do your taxes. I’ll explain one way which would be a joint return with your spouse. You need to get your SSN.

 

You pay the US for the seven months in the US. You can be considered a contractor (self employed) on your tax return. That will be gross income reported on Schedule C. You can also take any business deductions allowed. You also need to pay your own Social Security and Medicare when self employed figured on Schedule SE. 

 

For the income earned while in Canada, TurboTax wants that entered under “Less Common Income” where you find “Foreign Income”.  The one time I tried H&R software, they wanted it entered with a “substitute W2” as regular income. Either way, the software entered it on the wages line of the 1040.  It is your gross income for those first five months that are reported as wages. The other seven months are not wages, they are self employment income (Schedule C).Software can vary on how they collect your info but the Canadian five months would be reported on Line 1 while the self employed seven months would end up going from Schedule C to Schedule 1 Line 3 to the 1040 Line 8.   Line 8 is a sum of things entered on Schedule 1.
 

For the five Canadian months reported as income, you could use the Foreign Earned Income Exclusion Form 2555 to exclude US taxation on that money.  
 

For the seven US months you likely had Canadianan taxes held out of your checks,  you can get a credit for the tax paid to Canada using form 1116. Only for those seven months, not the full year if you use the Foreign Earned Income Exclusion for the five months in Canada.

 

A statement from your Canadian employer with a breakdown of how much you earned and how much was withheld for taxes would be helpful to have all the correct amounts. You do not submit anything from your employer with the tax return. It would be for your records only.

Thanks Wuozopo. Very helpful. This approach will have double taxation on my income when Canada has a treaty with the US and I am not self-employed. Canada is still considered my "tax home" since I do not have a green card yet. I still have strong ties to Canada and since I am on what many people call "purgatory" as I don't have status here, Canada is my tax residence. Would the Foreign Earned Income Inclusion apply for the full year since it is foreign earned?

 

Thanks again for your help.

Edited April 3, 2022 by wingfield

[Crazy Cat 41,884]

18 hours ago, wingfield said:

I do not have a W-2 so I can't report it.

That is 100% inaccurate.   All of my wife's income is from foreign sources.  There is no rule which says you have to have a W-2 to report income.   You simply have to list it on your 1040.  That consultant was just making up stuff....

Edited April 3, 2022 by Crazy Cat

[Wuozopo 4,293]

11 hours ago, wingfield said:

Thanks Wuozopo. Very helpful. This approach will have double taxation on my income when Canada has a treaty with the US and I am not self-employed. Canada is still considered my "tax home" since I do not have a green card yet. I still have strong ties to Canada and since I am on what many people call "purgatory" as I don't have status here, Canada is my tax residence. Would the Foreign Earned Income Inclusion apply for the full year since it is foreign earned?

 

Thanks again for your help.

A few concepts to consider or research further—

 

Filing a joint return is usually to your benefit. If you are trying to be a nonresident, then you can’t file jointly.

 

“Foreign earned” means earned while you were physically present, doing the work, and living inside a foreign country. So only five months qualify for the Foreign Earned Income Exclusion. 
 

Tax home gets complicated  Do you still maintain a home,/apartment  in Canada and keep your clothing, car, and wife there?  Do you regularly go to church, the gym, or restaurants/bars in Canada?  If you can establish a closer connection to Canada then you can be a non-resident alien of the US despite having enough physical presence days for the IRS to qualify you as a resident. (That’s an IRS thing for taxes, nothing to do with USCIS immigration status.)  But the thing that nudges you to a closer connection to to US is this found in Pub. 519

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 permanent resident.
• You had an application pending for adjustment of status during the current year.

Double Taxation
I don’t see the double taxation in the previous post. Let’s say $8000/mo from Canadian employer (converted to USD) and you started your physical presence in June. Your actual dates may vary.

 

Jan- May $40,000. You physically lived in Canada so can use the FEIE 

The income is reported on Line 1 as wages. Then the US tax on $40k is deducted before your final tax is calculated (Line 16 Tax on the 1040). So Canada got that tax money and the US did not tax it.

 

July-Dec $56,000. You were physically present, living and doing the work in the US. You can report that as self employment income as a self employed contractor of your Canadian employer. You are taxed by the US on $56,000. And since you also paid taxes to Canada on the $56k, to keep you from double taxation the US gives you a foreign tax credit. Whatever you paid to Canada on the $56k ends up subtracted from your US tax on Line 20 of the 1040. Double tax would be if you paid Canada tax and also paid the US tax on the same $56k. But the US gave you credit for what you paid Canada which means they reduced what you owed the IRS. 
 

Concerning self employed suggestion

That is just an easier way for your employer. If you remain an “employee” while a resident of the US, your employer needs to get a US Employer Identification Number (EIN). He would stop withholding Canadian taxes and start withholding US income tax, Medicare, and social security from your paycheck. He would submit those monies to the IRS on your behalf every paycheck date. At the end of the tax year, he would issue a W2 to you and send same to the IRS. YES, a foreign based employer can get an EIN and an account for submitting your withholding to the irs.If you do it that way as an “employee” then all of your income is reported as wages on Line 1, but only the part earned while living in Canada can be excluded from taxation. 

 

OR… If you are his “contractor” then he doesn’t hold anything out of your paycheck. (No Canadian or US).  It is your responsibility to pay in your own US taxes, Social Security, and Medicare.  You calculate all that on your tax return, but the IRS doesn’t want you to pay it all at the end. So self employed contractors will make quarterly estimated payments to the IRS to cover what they will end up owing. It’s an estimate. You hope to get close. If you send too much, it comes back as a refund. If you are a contractor then those earnings are not “wages” on Line 1 but are reported on Schedule C under Part 1 as “income”.  My example split your year as an “employee” while residing in Canada and as a “contractor” once living in the US.

 

Since you haven’t done a profile and timeline for Visa Journey, I’m going to have to bail out of this discussion now. I’m trying to limit the time I spend answering questions to those who take the time to do their part. It is helpful to see at a glance the basic information of the one who posts questions. I’m sure somebody else will help you, hopefully Canadian. 

[wingfield 3]

On 4/3/2022 at 9:19 AM, Wuozopo said:

 

Thanks Wuzopo for taking the time to explain. I appreciate it. You are correct. There is no double taxation.

 

I followed the interview in Turbo Tax Deluxe 2021 and got an unexpected refund of around $3K (mostly the $1400 x 2 stimulus recovery credit for the married couple).

 

What I did in the simulation:
1. Foreign income was reported as "A statement from my foreign employer (could be cash)". I entered all full-year Canadian income (converted to USD based on current exchange rate) under this.

 

 

 

 

 

2. In Interview, I entered the 12-month qualifying period as shown below. The Foreign Earned Income Inclusion portion, Turbo Tax allocated $42K then I had to pay US taxes on the rest. I then entered the taxes paid in Canada and it resulted in a refund.

 

 

 

 

QUESTION: Is this done correctly? Are you a CPA Wuzopo? I have been looking for a CPA or tax expert who could help me with this but with no luck. I went again to another local tax accountant in my area (Jackson Hewitt) and was told me there is no requirement for me to file (I know they are wrong....they are not just used to this situation that's why). If anyone has recommendations, please let me know.

Edited April 10, 2022 by wingfield

[Wuozopo 4,293]

@wingfield

 

No, neither of us are accountants. 
 

Question: You worked out a joint return in your simulation? 
 

1 hour ago, wingfield said:

Foreign income was reported as "A statement from my foreign employer (could be cash)". I entered all full-year Canadian income (converted to USD based on current exchange rate) under this.

Yes, that works. 

 

1 hour ago, wingfield said:

. In Interview, I entered the 12-month qualifying period as shown below. The Foreign Earned Income Inclusion portion, Turbo Tax allocated $42K then I had to pay US taxes on the rest. I then entered the taxes paid in Canada and it resulted in a refund.

Yes, but use your exact date of entry when you do this for real and the 12 month dates prior to entry for the qualifying period. And your taxes paid to Canada will get entered from Form 1116, not you entering yourself directly on the 1040. . But for simulation purposes you see how it works out.

 

2 hours ago, wingfield said:

followed the interview in Turbo Tax Deluxe 2021 and got an unexpected refund of around $3K (mostly the $1400 x 2 stimulus recovery credit for the married couple).

Did your wife get her $1400 last spring as an early payout?  I’m questioning why the credit on Line 30 would be $2800. Yes, as a couple you qualify for $2800, but if she got her $1400 early in 2021, then that is subtracted leaving a balance of $1400 (for yours) on Line 30. She would have gotten a letter from the IRS stating her payout. Or check the bank statements around March 2021 and be sure there is no $1400 from the government.  
 

 

[wingfield 3]

2 hours ago, Wuozopo said:

@wingfield

 

Thanks again for your help. See below:
 

Question: You worked out a joint return in your simulation? 
 

Correct, we will file as married filing jointly.

 

Yes, but use your exact date of entry when you do this for real and the 12 month dates prior to entry for the qualifying period. And your taxes paid to Canada will get entered from Form 1116, not you entering yourself directly on the 1040. . But for simulation purposes you see how it works out.

 

Please help me with this. I entered the US on May 31, 2021 so is the qualifying period from June 1, 2020 to May 31, 2021? The next page it asked me when I established the tax home in a foreign country. Of course I was born in Canada so I put my DOB (note to anyone reading: that's a phantom DOB...I would never put my real DOB in an online forum)

 

 

 

Did your wife get her $1400 last spring as an early payout?  I’m questioning why the credit on Line 30 would be $2800. Yes, as a couple you qualify for $2800, but if she got her $1400 early in 2021, then that is subtracted leaving a balance of $1400 (for yours) on Line 30. She would have gotten a letter from the IRS stating her payout. Or check the bank statements around March 2021 and be sure there is no $1400 from the government.  

 

Spouse did not get the payout in March. The IRS account shows $1400 to report on Line 30.

 

 

 

Edited April 10, 2022 by wingfield

[Wuozopo 4,293]

46 minutes ago, wingfield said:

Please help me with this. I entered the US on May 31, 2021 so is the qualifying period from June 1, 2020 to May 31, 2021? The next page it asked me when I established the tax home in a foreign country. Of course I was born in Canada so I put my DOB

Yes. Close enough. Sometimes you just have to get TurboTax move on. The IRS isn’t going to check your dates. I think the correct end date is May 30 because your US days start May 31. So try May31, 2020 to May 30, 2021. Yes your tax home did begin on your date of birth.
 

An easier way to get the  Foreign Earned Income Exclusion is the Bonafide resident test. You were a bonafide resident of Canada since the date of your birth. You can leave all that physical presence 12 months and tax home date blank. You only have to qualify on one of them. I used Bonafide Resident of the UK for the FEIE my entry year. I believe that questionnaire for bonafide resident asks what visa you had (to the foreign country Canada) You can say none or Canadian citizen. They want to know you were legally allowed to work in Canada. Some people mix that up and say K1 or CR1 visa…nope, not your visa to the US. The foreign country on your US  tax return is Canada.

 

1 hour ago, wingfield said:

Spouse did not get the payout in March. The IRS account shows $1400 to report on Line 30

If the IRS website says $1400, then she got her payment last year. She can’t have it again. There is a whole worksheet for line 30. Can you find that on TurboTax in the forms view?  The results of the worksheet populates line 30. 
You are going to have to clarify this more for me. You lost me. 

[wingfield 3]

21 hours ago, Wuozopo said:

 

 

If the IRS website says $1400, then she got her payment last year. She can’t have it again. There is a whole worksheet for line 30. Can you find that on TurboTax in the forms view?  The results of the worksheet populates line 30. 
You are going to have to clarify this more for me. You lost me. 

Thanks. We actually received the letter saying that we have to enter this on Line 30. In the website, it says 0 for 2020 because we already received those.

[wingfield 3]

Just to update others who may be on the same boat, I upgraded to Turbo Tax Deluxe to have an option to talk to a CPA to check it before you submit. A CPA from Turbo Tax with 10 years of experience just called me and actually chastised me for filing my taxes! He argued with me that I am a non-resident and should not be using Turbo Tax but should be using the Sprint Tax version for NR as Turbo Tax does not deal with NR etc. I paid $99 for nothing. He swore that I am a non-resident so my blood started to boil 😄.

 

I had to argue with him and read word for word the Substantial Presence Test from the IRS website that I am a resident for tax purposes. I could not believe that he would not believe me at first. He said he had 10 years of experience as a CPA. In the end, his tone of voice changed and he said "you're right." At that point, I lost confidence with him as a checker so I hanged up and now waiting for another CPA who is hopefully more knowledgeable.

 

Thanks for everyone's help on this matter. It looks like you are more knowledgeable than the CPA with 10 years of experience and other 3 tax experts that I went through.  🤠

Edited April 11, 2022 by wingfield

[Wuozopo 4,293]

19 minutes ago, wingfield said:

Thanks for everyone's help on this matter. It looks like you are more knowledgeable than the CPA with 10 years of experience and other 3 tax experts that I went through.  🤠

Edited just now by wingfield

We as immigrants have read IRS publications and instructions on all things affecting immigrants in detail a hundred times, whereas the average CPA or tax service employee hasn’t. It’s a small niche part of taxes. Now if you asked me about farm income, rental income, trusts etc etc,  I would be clueless. We buy TurboTax Deluxe to install ($29 the last couple of years) and never upgrade to audit defense or a CPA review even though it hounds you to.  

[dubu 5]

On 4/11/2022 at 3:10 PM, wingfield said:

Just to update others who may be on the same boat, I upgraded to Turbo Tax Deluxe to have an option to talk to a CPA to check it before you submit. A CPA from Turbo Tax with 10 years of experience just called me and actually chastised me for filing my taxes! He argued with me that I am a non-resident and should not be using Turbo Tax but should be using the Sprint Tax version for NR as Turbo Tax does not deal with NR etc. I paid $99 for nothing. He swore that I am a non-resident so my blood started to boil 😄.

 

I had to argue with him and read word for word the Substantial Presence Test from the IRS website that I am a resident for tax purposes. I could not believe that he would not believe me at first. He said he had 10 years of experience as a CPA. In the end, his tone of voice changed and he said "you're right." At that point, I lost confidence with him as a checker so I hanged up and now waiting for another CPA who is hopefully more knowledgeable.

 

Thanks for everyone's help on this matter. It looks like you are more knowledgeable than the CPA with 10 years of experience and other 3 tax experts that I went through.  🤠

Hi @wingfield,
I am on the same boat as you are. I have a question, did you end up paying taxes still?

We were doing taxes last week and based on my computation I still paid taxes almost same amount I paid to my home country. I was thinking it will be lesser.