What is the “Substantial Presence” test and what is the connection between it and the U.S. IRS 8840 form, the “Closer Connection Exception Statement for Aliens”?
With a submitted 8840 form, a Canadian Snowbird can “prove” they have a closer connection to another non-US country even though they are staying in the U.S. for an extended period each year. Otherwise, Snowbirds staying in the U.S. each year could be determined as having a “Substantial Presence” in the U.S. and then could be dunned for U.S. Income Tax, even if that Canadian doesn’t earn money in the U.S., or live there full time.
Three important and simple questions to answer;
- Were you in the United States for more than 31 days in the last calendar year?
- Did you spend days in the U.S. the calendar year prior to that?
- Did you spend days in the U.S. the calendar year before that?
If you did then you may want to calculate if you have had a “Substantial Presence” in the U.S. for the last full calendar year to be sure you aren’t suprised by the IRS inquiries.
Here’s how to calculate “Substantial Presence”:
- What will be the total days in the U.S. last full calendar year including all short trips? (For example we’ll use: 95)
- How many days were you in the U.S. the calendar year before that including all short trips? (For example we’ll use: 85)
- How many days were you in the U.S. the calendar year before that including all short trips? (For example we’ll use: 106)
For determining if there is “Substantial Presence” you calculate as follows:
- Last full calendar year – 95 days (Replace the 95 with your actual number of days in the U.S. the last full calendar year)
- The year before the last calendar year – 85 days divided by 3 = 29 (Replace the 85 with your actual number of days in the U.S, then divide your days by 3)
- In the full calendar year before that – 106 days divided by 6 = 18 (Replace the 106 with your actual number of days in the U.S. the year before and divide your days by 6)
In our example, we logged 142 days towards a “Substantial Presence” for the 3 full years before this one according to the formula that is provided by the IRS.
Do we have a substantial presence then? No, we do not. According to the I.R.S., the total number of days over the 3 years has to be 183 (when using their formula) or more for a traveller tho have a “Substantial Presence” in the U.S., and be liable for U. S. income tax.
However, to be sure there’s not a mistake, if your total days gets close to the 183, you might want to fill out the 8840 anyway. If so, it must be filled out a filed before June 15 of the following year.
Have a “Substantial Presence? It’s 8840 form time.
It’s almost impossible to contact the U.S. IRS from Canada about form 8840 to get guidance except by mail. Their online FAQ’s don’t refer to the 8840 form at all. The guide below is how I would fill out the form as a Canadian Snowbird. If you have submitted 8840 forms in the past with success, please review the instructions below based on your experience and please comment so that fellow citizens can have the most current and correct information. Thank you.
A Canadian with a “Substantial Presence” in the U.S. means you MUST take steps to prove to the U.S. Internal Revenue Service that even though you spend a lot of time there, you are not a U.S. citizen or a resident alien and that you do qualify for their “Closer Connection Exception” to paying U.S. taxes.
To qualify for this exemption Form 8840 is what you have to use. It’s also known as a Closer Connection Exception Statement for Aliens.
Each year the IRS updates the Form 8840. The form examples I’ve shown above and below were downloaded in 2022. The form shows that it’s for the year 2021. Next year, presumably, the fresh form would show 2022 for the previous calendar year, and so on.
How a Canadian Citizen completes the 8840 form.
The following graphics show segments of the 8840 form with instructions below each graphic about how to fill out that portion of the form. On the graphic are red numbers in a circle. If you look below the graphic, the numbers are there as well, and describe what goes in each section.
Further along on this page is a link to download the form from the IRS along with guidance on how to submit the form.
In this next area I’ve “cut the form up” into chunks digitally to make it, I hope, easier for you to know what goes where.
The first section I’ve selected is with the answers keyed below this graphic by number:
- Disregard this if you are a Canadian Snowbird as you will not have U.S. tax return.
- Input the dates of the year for which you are submitting the form. Since it’s based on calendar years, I input Jan 1 and December 31 of the same year, for the year the form applies to. In this case, 2021.
- After filling in your name and address leave the U.S. taxpayer number blank.
- Complete home address in Canada.
- Your address while in the U.S. If a rental, use that address, if an owned home that address. and if you are mobile and staying in National Parks or campgrounds, one of them is the address to use.
- Input the date you entered the U.S. in the previous calendar year. If you were already in the U.S. at your Snowbird home then, enter January 1 since this form is for all of 2022,
- Canada ( assuming it’s a Canadian Passport you use ).
- Enter your passport number.
- Enter the days for each of the years that you have calculated using the formula above in how to calculate “substantial presence”.
The next section of form 8840 to fill out is shown in the graphic just below, with the inputs shown by number just below it:
- Presumably Canada. If not, sorry, you’re on your own.
- Note that it refers to a “permanent” home. A Snowbird owned home in the southern U.S. is presuably not your permanent home.
- Typically that would be Canada too. If you’ve got children that flew the nest internationally, focus on the many relatives, cousins, brothers, and sisters that dwell in Canada, and I would answer Canada here.
- Some Snowbirds own a U.S. vehicle for use in the winter, and another at home in Canada. If you drive, like us, it’s Canada. If you own a vehicle in both countries, I would answer with Canada first, then the U.S.
- Same answer as number 4.
- To my mind this refers to your year-round residence, and I would answer Canada.
- For most of this, the answer here is Canada.
- Unless you have a permit to do so, a Canadian can’t work in the U.S. The logical answer here is Canada, and I wouldn’t hesitate to enter “retired” here.
The last section of form 8840 for you to fill out is shown in the graphic just below, with the inputs in shown by number just below the graphic:
- Write in the province where your license was issued.
- This is a tough one as some countries / states don’t allow a driver to have two licenses. On the other hand, I know of one Canadian driver that holds an Ontario license and a Florida license. If you have two, put in the both is my advice.
- In Canada we get on the voters list of our country automatically, typically from our federal tax returns and provincially from our provincial tax returns from the fed’s form. Though we don’t “register” I would put in the province in which we vote in this field.
- Presumably Canada. If not, you’re on your own. 🙂
- Unless you are earning money in the U.S. somehow, all of these should be checked “no” except, perhaps, for 25C. I have no way of knowing your answer to this.
- If you are Canadian, presumably the answer here is Canada.
- If you are retired, I would expect that the answer is Canada. If you are earning the bulk of your income from another country, I hope it’s not the U.S. 🙂
- If you do you be best advised to provide details.
- Any investments we have are in Canada so we would show Canada. If other than Canada, list the country where you have investments.
- Check ‘yes’ and then input Canada on the ‘yes’ line below the check.
- Sign the form, date it too, and you’re done.
What Form 8840 Does
By filling out the IRS 8840 Form you are providing evidence to the IRS that, even though you may stay in the U.S. for extended periods of time each year and – by their formula – they have determined that you have a substantial presence in the U.S., you should be exempt from having to pay U.S. income tax.
Where Do You Get IRS 8840 Form?
You can download a copy in .PDF format if you visit this URL: http://www.irs.gov/pub/irs-pdf/f8840.pdf
Print it or save the form to your computer to be printed and filled out at a later date.
Submitting the 8840 form:
After you have filled out the form you have to submit it to the IRS. How?
- If you do not have to file a U.S. tax return then send the Form 8840 to:
Department of the Treasury,
Internal Revenue Service Center,
Austin, TX 73301-0215
If you have to file a U.S. income tax return:
- If you are filing a 2014 Form 1040NR or Form 1040NR-EZ, attach Form 8840 to it. Mail your tax return by the due date (including extensions) to the address shown in your tax return instructions.
When Do You Have To File Your Form 8840?
Each year you spend more than 31 days in the U.S., and using the information found above determine that you have a “Substantial Presence” there, you must file the form in the current year by June 15.
Word to the wise; if it were us, we wouldn’t delay, but would submit the form as quickly as we can to allow as much time for the ponderous wheels of government to turn, and for a resolution to this issue before we next wanted to take our Canadian Snowbird journey to the United States.
Hope this helps. Good luck!