If you’re a Canadian snowbird. You are probably breaking U.S. law.
Most Canadians who winter in the U.S. vehemently believe they can just live there for 6-months each year. They are dead wrong.
The truth is they are probably breaking U.S. immigration laws and also the tax laws of the IRS. The outcome of either or both of those could be being barred from U.S. entry for a couple years or more, and also being levied large fines for failure to file U.S. taxes and the accompanying forms for foreign bank account ownership.
Most people believe they can enter the U.S. for 6 months, leave for a while, and then go right back in for another 5 or 6 months, and so forth. The assumption is that after 6 months you must leave, but once you leave the clock resets and you can go back in again.
That is totally wrong.
U.S. Immigration law is complex but essentially it works like this.
The U.S., like most countries, issues tourist visas for a three month period. The confusion comes with Canadians and a few other countries. There is no paper or stamped visa issued to Canadians like a traveler from Argentina or elsewhere would get upon entry. A Canadian is simply waived through. However, the tourist visa time frame is still only 3-months. There’s just no paper.
If you want to extend that 3-month stay in the United States, you must file a request with U.S. Citizenship and Immigration Services (USCIS) on the Form I-539, Application to Extend/Change Nonimmigrant Status before your authorized stay expires. Full details are here.
That covers your immigration tourist visa status. Your tax status is far more complicated. You encounter something called the IRS Substantial Presence Test. ( https://www.irs.gov/individuals/international-taxpayers/substantial-presence-test )
Say you’re a typical 70 year old couple who heads to Phoenix for the first time in late October and returns to Canada in April. That’s roughly 6 months. And that probably equals 6 X 30 days for a total of 180 days, 3 days under the max allowed (183 days). Ok, if it's a one off.
But lets say your mom and dad are conservative, but regular vistors, and only go for 5 months (or 150 days) every year. Golden right? No, it’s a problem.
U.S. Tax law is a rolling three year average of your goings and comings into the United States. Each day you are there counts for the overall total. The ‘total’ is a combination of the past three year’s entries.
Your parents visit and are in Arizona for 5 months (150 days) in 2014.
They come again for the same amount (150 days) in 2015
And they do the same again (150 days) in 2016
One would assume that they haven’t breeched the 180 day mark. Unfortunately they have. Here’s why.
The tax law makes you a tax resident of the U.S. if you cross the 183 day mark because of this particular 'averaging' criteria:
1/6th of the year’s days two year’s back.
1/3rd of the year’s days one year back.
And 100% of the days in the current year.
All those days are totalled into the current year. So in the normal example above it would look like this:
2014 = 25 days (1/6th of 150)
2015 = 50 days (1/3rd of 150)
2016 = 150 days (100% of the days)
That all becomes, 150 + 50 days + 25 days, for a total of 225 days in the U.S. for tax status.
Under this scenario you would be libel for U.S. taxes, penalties for not filing, and various other things on your total worldwide income. In addition, getting your U.S. taxes even done at all is going to be expensive because you’re a foreigner. It can easily be upwards of $1500 - $2500 because the forms entail tax treaty credits and are complicated. Most non-U.S. accountants will not have a clue how to properly file them or to navigate the U.S. tax code. For instance, having a plain TSFA is a nightmare on a U.S. return.
It pays to make a simple spreadsheet or keep track of your days in the U.S. each year and keep that rolling average up to date. The last thing you ever want to do, is go over 183 until the snowbird laws are changed between the U.S. and Canada. There’s continual talk of that happening. But so far nothing has changed.
To combat the tax issues a Canadian can file the Closer Exemption Status form 8440. It can help. But is is not an automatic exemption, particularly if you own a residence in each country. That can muddy your closer Canadian ties. The key is not going over 183 days.
The closer connection form primarily exists for people who need to be temporarily in the U..S. for periods of time beyond 183 days. ie: Students, people with temporary work permits, armed forces personnel from other countries, visitors doing research and so forth. The form essentially clarifies that they will be returning to their main country when their time here is over. It is not specifically for snowbirds as some believe. However, it is a good thing to file each year.
This is directly from the IRS concerning form 8440.
As if all that weren't enough, there is another little catch that most also haven't a clue about. If you leave the U.S. and then return within 30 days, the clock is still running as if you never left. So if you decided to leave Arizona on say December 4th for Christmas back home, and then fly back to Phoenix on December 30th to continue your winter in the sunshine, the IRS would consider that you never left at all. All those days back home in Canada may count in the rolling average.
So... traveler beware. The smart thing is simply to always stay under 183 days according to the 3 year averaging.