Posted on April 22, 2013
Written by Avner Polatsek | @AvnerPolatsek
Americans living in Canada who haven’t been filing taxes might have an added incentive to file in the near future thanks to Obamacare. As The Globe and Mail reported, earlier this year, US citizens living in Canada need to file their income tax in both countries, but usually don’t need to pay anything in the US because the taxes they’ve paid in Canada offset any tax owing in the US.
Now, there’s a potential wild card. As Barrie McKenna reports, the new US health care tax will not be offset by the usual foreign tax credits.
This means that some US citizens living in Canada will now need to pay taxes to the IRS. If you’ve been reading our blog and are familiar with the Streamlined Filing Procedure, you’ll know that the IRS is giving Americans living abroad the chance to settle up their unfiled tax returns without penalties as long as they owe less than $1,500 a year. This meant that US citizens who had been living in Canada and had no idea that they were supposed to file taxes in the US could find themselves off the hook for neglecting to file.
If you would like to learn more about your legal obligation to file in both the US and Canada, read our post about filing in both countries.
The Globe and Mail’s Barrie McKenna expands on the topic of what the healthcare tax could mean for US citizens taking advantage of the Streamlined Filing Procedure:
“The new tax could put some individuals over that [$1,500] threshold, making them ineligible for the amnesty from 2013 onward, said Ian Macdonald, a U.S. tax expert with PricewaterhouseCoopers in Toronto.
‘That [amnesty] may be in jeopardy now. People may not be able to use it,’ he said. ‘I would hope that most people would [choose to] get through this streamlined process now.’
The situation is further complicated by new, higher U.S. income tax rates that also kick in this year, pointed out Jim McConnery of Welsh LLP in Ottawa.
That could mean some expatriates owe U.S. taxes for the first time.”
If you’re a US citizen living in Canada and you haven’t been filing US taxes, now is a good time to visit your tax professional and get help to start the Streamlined Filing Procedure. The new health care tax is an added bonus incentive, but we think that the IRS forgiving late penalties is a good enough reason to take advantage of the Streamlined Filing Procedure, don’t you?
If you would like to speak with a tax professional in Toronto, please get in touch with us!