TN Visa Taxes for Canadians: Residency and Returns

Which returns do you file, in short?

The pair depends on US days, treaty residence and whether you claim the treaty position.

Does a TN visa make you a US tax resident, and do you need 183 days?

No. TN is a visa class, not a tax status: it does not make you a US tax resident or exclude any US day from the count. Without a green card, residency generally turns on the substantial presence test, subject to exceptions and treaty rules. IRS: substantial presence test.

You do not need 183 days in one year. The test requires at least 31 counted days in the current calendar year and a weighted total of at least 183: all current-year days, one-third of previous-year days and one-sixth of second-previous-year days. Earlier visits can fill the gap: 150 days this year, 90 last year and 120 the year before weigh 150 + 30 + 20 = 200. Vacation and business trips before the TN job count, and generally any part of a day counts. IRS: day-counting rules.

For the closer-connection exception and Form 8840, see Snowbirds and US residency. A Canadian house alone does not establish it: you also need fewer than 183 US days and a tax home in Canada (the general area of your main place of work, wherever your family home is), which a US job can move to the US. It is unavailable if you applied, or took steps during the year, to become a permanent resident, or had an adjustment application pending. Form 8840 must be filed by the Form 1040-NR due date, or the exception is generally lost. Publication 519: closer connection.

When does US residency start, and what changes for commuters or a late start?

US residency generally begins on the first counted US day of the year the TN worker meets substantial presence. If you were a US resident at any time last year and are one this year, residency generally starts January 1. IRS: residency dates.

An earlier holiday can therefore move the start before the employment date. Up to 10 earlier days can sometimes be disregarded for the start date if you had a foreign tax home and a closer connection there; they still count for the substantial presence test. Publication 519: first year of residency.

Qualifying commutes must cover more than 75% of workdays in the working period; Working across the border covers how workdays and the working period are counted. Publication 519: regular commuters.

A late arrival who meets the test only in the following year may be able to choose residency from a later start date in the arrival year. First year as a US tax resident covers that choice, the 10-day rule and the dual-status return. IRS: first-year choice.

Can you be a resident of both the US and Canada?

Yes. A Canadian TN worker can meet US substantial presence while remaining resident in Canada under Canadian rules. Canada considers significant residential ties, especially an available home, spouse or common-law partner, and dependants. CRA: residency status.

A spouse and home in Ontario can preserve Canadian residency despite substantial US time. If both countries claim residence, apply the treaty next.

For the full Canadian ties analysis and whether to request a CRA opinion using Form NR73, see Canadian tax residency.

If both countries say you are resident, how does the treaty decide?

Article IV decides treaty residence through ordered tests. Citizenship comes only after permanent home, centre of vital interests and habitual abode, so a Canadian passport cannot bypass them; a retained home is itself the first test. Finance Canada: Article IV.

Family location, living arrangements and economic connections are weighed together, and treaty residence can change when they change.

Claiming Canadian treaty residence on the US return is a choice. A dual resident who claims it generally files Form 1040-NR with Form 8833 (dual-resident box checked, Article IV on line 1, the facts on line 6); the alternative is Form 1040 as a US resident, claiming no treaty benefit. Filing as a nonresident means tax is computed as a nonresident alien: generally no standard deduction and no joint return. The regulation generally preserves US residency for other tax-code purposes. A green card changes this: a long-term resident, meaning a green card holder in at least 8 of the last 15 tax years, who claims treaty nonresidence is treated as ending US residency, with possible section 877A tax and Form 8854. 26 CFR 301.7701(b)-7; IRS: Form 8833; Form 8833 instructions; Publication 519: nonresident deductions.

Which US return do you file?

US residents generally report worldwide income; nonresidents report US-source and US-business-connected income, so the return follows residency, elections and treaty claims. Publication 519.

A dual-status year is part nonresident and part resident: worldwide income during residency, taxable US income during nonresidency. Standard deductions and joint returns are generally unavailable unless a full-year resident election changes that treatment. Publication 519: dual-status tax year.

Form 1040-NR does not mean US wages are exempt; for Article XV wage relief, see Working across the border.

Resident and dual-status employee returns are generally due April 15 after year-end; Form 1040-NR is generally due then when wages are subject to US withholding. Publication 519; Form 1040-NR instructions. Failure to disclose a required treaty position can bring an individual penalty of US$1,000. Publication 519: reporting treaty benefits. States set their own rules, and some do not honor federal treaty provisions. IRS: treaties and state tax.

What do you file in Canada if your home or family stays there?

A TN worker who remains a Canadian factual resident (still resident because of ties such as a home, spouse or dependants) generally files a T1 with worldwide income, including US wages converted to Canadian dollars. Use the forms for the province or territory where you keep residential ties. A treaty deemed nonresident follows the rules for nonresidents of Canada. CRA: factual residents outside Canada.

Eligible US tax on US-source income may generate a Canadian foreign tax credit. The credit is generally limited to the lesser of eligible foreign income tax paid and Canadian tax on that foreign income; US payroll withholding is not necessarily the final creditable tax. CRA: foreign tax credit.

CRA: foreign tax credit; Income Tax Act, s. 233.3. For who must file the T1135 and how, see Foreign property and affiliate reporting.

The credit follows final US tax, so it is reconciled to the final US return, W-2 and any state return; the CRA also asks for the US tax account transcript. If either country later changes your return, see Amending your return after the other country changes yours.

A factual resident's employee return and balance are generally due April 30 after year-end. If you or your spouse or common-law partner carried on a business in Canada, filing is generally due June 15, except for a business whose expenditures mainly relate to a tax shelter; the balance remains due April 30. CRA: filing dates.

When do you stop being a Canadian resident if your family moves too?

Moving the household and severing significant Canadian ties can end Canadian residency. The CRA generally uses the latest of the date you leave, the date your spouse or common-law partner and dependants leave, and the date you become resident in the country where you settle. A person who retains Canadian ties may instead become a deemed nonresident when the treaty assigns residence to the US, and a deemed nonresident is subject to the same rules as an emigrant, so departure tax can apply. CRA: leaving Canada; CRA: factual and deemed nonresidents.

The departure-year T1 reports the departure date and worldwide income for the resident period; afterward, Canadian-source income follows nonresident rules. For departure tax, T1161 and registered-account decisions, use Moving from Canada to the US.

Can a spouse on a TD visa file jointly and get an ITIN?

A joint return generally needs both spouses to be US residents for the year, or an election that treats a nonresident spouse as a resident. TD is the dependant status for a TN worker's spouse and children, and the spouse's residency is tested on the spouse's own US days. An ITIN gives a spouse a US tax number but does not itself make a joint return available. Publication 519.

Both spouses sign a statement attached to the first joint return; an amended return can make the election within 3 years after filing the original return or 2 years after paying that year's tax, whichever is later. The nonresident-spouse election brings both spouses' worldwide income, including Canadian investments, into US tax for the full year and every later year until it ends, and a couple whose election ends cannot make it again. Each spouse is liable for the whole joint tax. The election also generally limits treaty claims as a resident of a foreign country while it is in effect, and it makes the spouse a specified individual for Form 8938, although the IRS manual says the election is not considered when deciding FBAR residency. IRS: nonresident-spouse election; 26 USC 6013; Form 8938 instructions; IRM 4.26.16.

A spouse who is not eligible for an SSN can apply for an ITIN, but only when listed on a return that claims an allowable tax benefit or files a return, including a joint return by election. The applicant attaches the Social Security Administration's letter of denial and does not file Form W-7 while an SSN application is pending. Form W-7 instructions. Married to a nonresident covers the election and the ITIN steps.

Do TN wages attract Social Security and Medicare tax?

TN employment in the US generally attracts Social Security and Medicare tax even when the worker files as a tax nonresident. The IRS applies these taxes to wages for US work regardless of citizenship or residence, and Publication 519 describes the visa-based exceptions for F, J, M and Q students and exchange visitors, not TN. IRS: employee payroll taxes; Publication 519.

The Canada–US social security agreement can change coverage only for an employee a Canadian employer sends to work temporarily in the US: the assignment must not be expected to exceed 60 months, with conditions for the same employer or a qualifying affiliate. A new hire by a US employer is not a qualifying transfer. A qualifying employee generally gives the US employer a Canadian certificate of coverage; citizenship or treaty income-tax residence is insufficient. SSA: Article V; IRS: certificates of coverage.

Do you report Canadian accounts, RRSPs and TFSAs while on a TN?

A TN worker who becomes a US resident must assess foreign-account reporting separately from income tax. Foreign accounts, Canadian or elsewhere, can be reportable even if they generate no taxable income. FinCEN: FBAR.

FinCEN: FBAR requirement; IRS: Form 8938 instructions and dual-resident rule; Publication 597: Canadian retirement plans; Form 3520 instructions.

Whether a treaty claim removes the FBAR duty is unsettled. The FBAR regulation follows US tax residency, and the treaty regulation generally keeps you a US resident for purposes other than computing income tax. IRS examiner guidance goes further, saying a treaty provision that allows nonresident filing does not change FBAR residency when a residency test is met, but that manual is internal guidance, not a regulation. The Form 8938 exception does not by its terms address the FBAR. 31 CFR 1010.350; 26 CFR 301.7701(b)-7; IRM 4.26.16.

For Form 8938 thresholds and penalties, see Foreign account reporting.

What should you gather before choosing your filing position?

Gather these before choosing a filing position or signing a spouse election:

• US entry and exit dates for the current and two preceding calendar years, with commuting days marked, plus TN and TD arrival dates, the employment start date and SIN and SSN records.
• Canadian and US housing records, and family move dates.
• W-2s, pay slips, Canadian slips, both spouses' income, final tax and payment records, prior returns and treaty disclosures.
• Canadian account maximum balances and any certificate of coverage.

Stock awards, retained homes, spouse elections and missed disclosures can change the filing position. A cross-border tax review looks at them together with both countries' returns.

Example

Illustrative only. All money amounts below are in US dollars, including converted Canadian account values.

A Canadian worker starts a TN job on February 1 and is in the US 200 days that year, with no earlier US days. 200 is above 31 and above 183, so substantial presence is met and US residency generally begins February 1. The spouse stays in the Ontario family home and a US apartment is also available, so a permanent home exists in both countries and personal and economic ties decide.

If those ties favour Canada for the whole overlap and the worker claims it, the worker generally files Form 1040-NR with Form 8833 on US wages of US$100,000, and a Canadian T1 reporting the wages in Canadian dollars with a foreign tax credit on Form T2209. Canadian accounts of US$30,000 at their highest combined value are above the FBAR threshold, so the FBAR question applies, with the unsettled treaty point above. If the spouse and the Ontario home move to the US, ties may favour the US: the worker generally files Form 1040 as a dual-status return, because residency starts February 1, and Canada treats the worker as an emigrant.

Different for you?

• You want the full Canadian ties analysis or the CRA's opinion on whether you remain resident: use Canadian tax residency.
• You commute daily or stay in the US during the workweek: use Working across the border.
• You take short US nursing or medical contracts: use Short US contracts while living in Canada.
• You are moving the household permanently: use Moving from Canada to the US and Leaving Canada.
• Your TN is ending and you are moving back to Canada: use Leaving the US and Moving from the US to Canada.
• You receive stock awards or delayed pay: use Stock awards and pay after a move.
• You missed US returns: use Catching up on missed US returns.
• You filed returns but missed account forms: use Missed FBAR or TFSA forms.
• You need a treaty claim, a spouse election or coordinated returns: use Cross-border tax.