Heather Latter
Given the proximity of Rainy River District to the United States, there are plenty of dual citizens, as well as American citizens, living and working on the Canadian side of the border.
But many aren’t aware of the recent tax crackdown by the U.S. requiring all U.S. citizens, including people with dual citizenship, to file an income tax return to the Internal Revenue Service (IRS).
“I never even thought of it,” said Nestor Falls resident, Cory Card. “I don’t live in the U.S., so I didn’t think I had to [file there].”
But Card was born in Waukegan, Illinois, and lived there until he was five years old before moving to Canada.
He became an official Canadian citizen in 2005, but still holds his American citizenship, as well.
“If you are a U.S. citizen and you are living in Canada, you may have dual citizenship—it doesn’t matter, as a U.S. citizen you are taxed on your worldwide income, irregardless of where you live,” noted Randy Pozniak, a certified public accountant in International Falls.
Some local accountants have contacted Pozniak to help with recent U.S. income tax returns for their Canadian clients, who have been scrambling to comply with the tax law.
The enforcement of this law is part of a push by the IRS to make sure U.S. taxpayers are paying what they owe on foreign accounts.
And in the next few years, the IRS will require financial institutions outside the United States to disclose all accounts held by current and former U.S. citizens.
Unlike the U.S., most other countries do not require its citizens to file annual tax returns based on their worldwide income, regardless of where they live.
“U.S. citizens have an obligation to file an income tax return with the Internal Revenue Service if their income is above the filing threshold, which varies every year, and that threshold is generally around $9,000,” Pozniak explained.
He indicated there are a few tax breaks available, one being the Foreign Earned Income Exclusion.
“If you are living in a foreign country and working for wages, you can exclude approximately $90,000 of income off your U.S. return. But you have to file a return in order to claim that exclusion, which is the unfortunate thing,” he voiced.
“If you still have income on the return that has not been excluded by the earned income, other income with interest, dividends, capital gains, rental income, whatever, the Foreign Tax Credit is available,” he explained, citing the taxes paid to Revenue Canada can be used to offset a person’s U.S. tax.
So in almost all of the returns Pozniak has been working on recently, he has not come up with any taxes actually owed to the Internal Revenue Service.
“But there is still this filing obligation,” he stressed, adding
millions of people are probably not aware of it.
“I’m sure there are many U.S. citizens living in Canada who are not aware of it—and living in other countries in the world also,” he expressed.
He indicated there is a second issue regarding filing with the Department of Treasury.
“If as a U.S. citizen, you have money in a foreign bank or a foreign broker account, and the value of that account is $10,000 or more, you should have been filing on an annual basis a form with the Department of Treasury, which just lists the name and address of the bank, the account number where it’s at and the balance in the account,” Pozniak noted.
“That covers not only accounts that you own exclusively, but also joint accounts,” he added.
While the deadline to file a income tax return in the U.S. is June 15, the IRS had issued a limited amnesty for U.S. citizens and residents to report their foreign bank accounts with reduced penalties, but this was only extended until last Friday (Sept. 9).
“The amnesty program was designed more for criminal activity,” Pozniak declared. “If you were hiding funds in a bank account and not reporting it for taxation to anybody—that’s criminal activity. If you were involved in something of that nature, that’s what the amnesty program was there for.
“And the IRS would not prosecute you criminally for that,” he added.
Now that the filing deadline for this year and amnesty program has passed, Pozniak still recommends any U.S. citizens living in Canada to file their income tax returns.
“Absolutely—get in the system and continue to file,” he advised. “Penalties will apply only if they owe income taxes to the U.S. on the tax return.
“Most of them do not.”
