Snowbirds and new US income tax rules


This may be of interest to many of our 50+ retired readers who head south to escape the terrible winters of the north. Snowbirds and new US income tax rules could effect those who head south for long stay vacations. The US government is now tracking border crossings – both at entry and exit points and dates. Favorite winter destinations for Canadians include Florida, California and Arizona. Most snowbird leave at the end of November and don’t return until the April in order to avoid the awful Canadian winters.  In the past, this was easy but now the US is tracking the time spent in their country.

If you overstay your time in the US, you could be liable to pay US income taxes and lose your Canadian healthcare benefits. The IRS has a formula to determine whether a foreigner has to pay taxes in the U.S.  Apparently if you spent 182 or more days in the States you could face IRS taxes and risk losing Canadian healthcare benefits.  If you are staying long term in the United States you should verify the length of time you are allowed to stay without risking a bill from the IRS.

This article from the Financial Post explains further:

Canadians who normally head south of their border for warmer weather are keeping closer track of their time in the United States because if they stay too long, they could lose their Canadian health benefits and might owe U.S. income tax.

Just last year, the two countries implemented an agreement to scan passports and share the information, meaning that — unlike past years — America’s tax authorities now know exactly how long snowbirds are spending in warmer climes like Florida, California and Arizona.

And that has many worried Canadians monitoring their stay on American soil.

People like 74-year-old former TV producer Richard Simpson, who stays in Fort Myers, Florida, from the end of October through April, then heads back to Toronto.

“People have this fear in the back of their heads about playing it too loose, and spending too much time down here,” he said. “Whenever there’s a ‘Canada Night’ gathering, it’s the No.1 topic of conversation.”

The magic number is 182 days in a single year. More than that, and Canadians risk being considered a U.S. resident for tax purposes.

If Canadians overstay their welcome, they risk creating a U.S. claim on their worldwide income, getting barred from the country for five years and losing prized free healthcare, according to Dale Walters, the Phoenix-based chief executive officer of KeatsConnelly, a financial planning firm that specializes in cross-border issues.

Even less than 182 days, though, and they still might meet what the U.S. Internal Revenue Service calls its “substantial presence” test. It is a complicated formula, but if snowbirds spend more than roughly 120 days per year in the United States over a three-year period, the IRS starts getting interested in them.

“The technology has finally gotten to the point where they can track border crossings easily,” said Walters. “Snowbirds are very aware of this. Some of them have become pretty paranoid about it.”

Read more on snowbirds and new US income tax rules on the Financial Post here.