Out of my depth on this one - US citizen has lived in Canada and worked there for 10 years. Last time he filed US taxes was in 2002, when he worked here 6 months. Since then, he has filed only in Canada and was not aware he needed to file a US return even if he owed no tax. His income has always been less than the foreign earned income credit.
Should we go back and file returns for the last 9 years? Or let sleeping dogs lie and file a 2011 return? He should probably have filed the TDF90-22.1; he thinks he had bank accounts totaling $10,000 or more at some point in some years, but is not sure which years.
For part of the time, he has been in a partnership, owning less than 50%. He has paid into the Canadian social security system, so I don't believe he needs to file SE tax. Correct?
Any advice from someone experienced in international taxation would be appreciated!
asked 23 Jan '12, 20:36
For starters all U. S. citizens are required by law to report their global income from all sources. As a tax professional you have a legal and ethical obligation to advise him of this. Failing to advise him properly COULD easily land on your shoulders and negatively impact YOUR license.
Secondly, there is NO foreign Earned Income Credit - there is a foreign earned income EXCLUSION and there is a Foreign Tax Credit. If he qualifies for either he may not have a Federal tax liability, but there's no way to know until you do the returns.
Thirdly, he likely also has a STATE tax return requirement. California is the ONLY state I'm aware of that MAY let you waive out of a state filing IF you've left the country with no intention of returning to California when you come back stateside. Every other state that I've on expects you'll come back so you still have to file in those states. AND some of those states, like Maryland, follow the Federal Foreign Earned Income Exclusion rules, allowing you to exclude the same income from state tax.
But some states, like California, do NOT recognize the Foreign Earned Income Exclusion. Meaning if he is expected to return to California he would have to file a California tax return, get NO Foreign Earned Income Exclusion AND pay tax to California.
Whether he's responsible for SE tax is a factor of his employment status. If he was an EMPLOYEE of the Canadian company he would not be allowed to contribute to U. S. Social Security. If was a part owner in a partnership I THINK he's subject to the same SE tax rules as any other partner. Though I honestly do NOT know for sure how you'd interpret this if it was a Canadian partnership. It is possible he'll qualify and get Social Security from BOTH the U. S. and Canada.
answered 24 Jan '12, 13:41