How US Citizens Living in Canada Can Benefit from the US CARES Act

by May 11, 2020News, Tax Filing Requirements, Tax Planning

As you may be aware, US citizens living abroad, including those living in Canada, have an obligation to report and pay taxes on their worldwide income. They do so by filing annual tax returns as well as by complying with various foreign account reporting requirements. As such, US citizens living in Canada typically find themselves facing a daunting tax-reporting exercise each year, filing and complying with both the Canadian and US tax authorities.

But this year, there’s finally some good news for US citizens living in Canada.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law by President Donald Trump on March 27, 2020. The act provides a direct payment of $1,200 USD ($2,400 USD for married couples) to all US citizens, including those living abroad, provided certain conditions are met.


Who is Eligible to Receive the CARES Act Direct Payment?

US citizens or resident alien individuals (green card holders), who have filed their tax returns for either 2019 or 2018 and who have an adjusted gross income up to $75,000 USD ($150,000 USD for married couples filing joint returns) will receive the CARES Act direct payment. The payment will be distributed automatically to eligible individuals’ bank accounts.

That is great news for US citizens living in Canada who have been compliant and filing their US tax returns each year.


What if You Haven’t Been Filing US Tax Returns?

Unfortunately, many US citizens living in Canada are unaware of their obligation to file US tax returns and to report their worldwide income to the IRS each year; others may have recently found out, but don’t know where to start.

As tempting as it may be, if you are a US citizen living in Canada who hasn’t been compliant with the IRS, you should not file your 2018 or 2019 tax return alone in an effort to obtain the CARES Act payment. Doing so will cause more harm than good, as you will face potentially large penalties from the IRS.

However, US citizens living in Canada who are eligible can use the Streamline Offshore Disclosure Program to become tax-compliant with the US government while avoiding penalties.


US Citizens Living in Canada & the Canada Emergency Response Benefit (“CERB”)

US citizens living in Canada who have stopped working due to the COVID-19 pandemic and who have an income of at least $5,000 CAD in 2019 or in the 12 months prior to the application date will be eligible to receive a taxable benefit of $2,000 CAD per month for up to four months. Currently, US citizens living in Canada can apply for benefits under the CERB program as well as receive the direct payment under the US CARES Act.  At this moment there’s been no indication that the two benefits are unavailable simultaneously.

If you haven’t been tax-compliant with the US government, this is a good time to address this issue. MCA Cross Border Advisor’s team of multidisciplinary professionals can guide you through the various cross-border issues you may be facing.

During these challenging times, we hope you all keep safe!

MCA Cross Border Advisors, Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.>