"The hardest thing in the world to understand is the income tax."

Albert Einstein

Should TN Visa Holders in the United States File Form 1040 or 1040NR?

Author: Brad Howland
First Posted: Feb. 22, 2011

TN status is a non-immigrant visa category that permits Canadian and Mexican citizens in certain occupations to live and work in the United States. The fact that it is a temporary visa allowing for long-term residency can make it difficult to decide which U.S. tax form to file.

TN status is initially granted for only three years, but it can be extended indefinitely (if allowed) in three-year periods. Wikipedia reports that there are Canadians who have been living in the U.S. under this "temporary" visa status for more than 10 years.

Many Canadian taxpayers turn to the Substantial Presence Test in IRS Publication 519, take a quick look at the chart, and decide they can file as U.S. Resident Aliens based on the number of days they have been present in the United States. They miss the small print just after the chart that says "In some circumstances you may still be considered a nonresident alien under an income tax treaty between the U.S. and your country. Check the provisions of the treaty carefully."

The terms of the Canada/United States tax treaty can overrule the Substantial Presence Test. It is therefore important to consider several things when deciding whether to file Form 1040 as a Resident Alien or 1040NR as a Non-resident Alien:

  • How does the taxpayer's situation fit with Article IV of the tax treaty?
  • What are the intentions of the taxpayer? How long are they planning to live and work in the United States? Do they ultimately want to achieve U.S. permanent residency by going from TN to Green Card status? Or are they planning to return to Canada within a relatively short period of time?
  • Has the taxpayer bought a house in the United States? Do the spouse and dependents have TD status? Has the family moved to the U.S. with the taxpayer?
  • Has the taxpayer severed residential ties to Canada? Does he/she still own a house in Canada? If yes, is that house rented out at fair market value? Is non-resident tax being withheld on the rental income? Is the taxpayer filing Section 216 returns to report the income and expenses?
  • When the taxpayer moved to the U.S. was a departing-Canada part-year income tax return filed? Was a dual-status return filed for the U.S. in the year of arrival? If the taxpayer has returned to Canada, has an incoming Canadian part-year income tax return been filed?
  • Does the taxpayer actually live in the United States, or does he/she live in Canada and commute or work remotely?
  • Has the taxpayer complied with U.S. obligations for Resident Aliens, such as reporting world-wide income to the United States, filing Form TD F 90-22.1 to report foreign financial accounts, or filing Form 8891 to report an RRSP to the IRS?

A good tax preparer will consider all of the above factors before deciding which U.S. tax return to file. Get advice from an experienced cross-border preparer if you aren't sure what to do.

Disclaimer

This information is provided without warranty of any kind. All readers wishing to take advantage of the information offered here should consult a qualified income tax preparer. In no event will Brad Howland, Howland Tax Services, or this website be liable for any damages, including lost profits, arising out of the information offered on this website.