Cross Border Tax Preparation & Accounting Services

WHO FILES U.S. 1040 Tax Returns?

  • You are a U.S. citizen.
  • You have a “green card.”
  • You spent a lot of time in the U.S. over the past 3 years (see substantial presence below)
  • Generally, if you are a U.S. citizen or resident, you would file Form 1040 on worldwide income by April 15, 2027 (2026 tax year deadline)
  • A U.S. citizen living in Canada is required to file Form 1040 by June 15, 2027, but must pay by April 15, 2027, if there is a balance due for tax year 2026.
  • For most people, you must file Form 1040 if you exceed 2026 “filing thresholds”—single $16,100 (under 65); married filing jointly or qualified widow/er $32,200 (both under 65); married filing separately $5 (any age); head of household $24,150 (under 65).
  • There may be other reasons to file the annual U.S. Form 1040, so check the IRS website if in doubt.
  • The kiddie tax applies to children with unearned income over $2,700 in 2026.
  • "Unearned income" will be taxed at the parent's tax rate.
  • "Earned income will still be taxed at the child's rate in the single tables once over $16,100.
  • The standard deduction for dependents is the greater of $1,350 or "earned income" plus $450, up to the regular standard deduction of $16,100.
  • File Form 4868 if an extension of filing is required, extending the April 15, 2027, Form 1040 deadline to the extended due date of October 15, 2027. Note you should pay "estimated taxes" by April 15, 2027, to avoid/reduce the "failure to pay" penalty.
  • Tax Tip: If you are a U.S. citizen or green card holder living in Canada, you can get a nonrefundable "Child Tax Credit" of up to $2,200/child under 17 years, and $500 for a "qualifying dependent" if their income is below $5,200 in 2026 and you provide more than half their support; phase-out begins at $400,000 for married filing jointly ($200,000 for all others)
  • The "Additional Child Tax Credit" of up to $1,700 per "child" is refundable, which applies in cases where the child tax credits are disallowed .
  • You could be entitled to the "child tax credits" if you don't claim the Form 255: Foreign Earned Income Exclusion (FEIE) to exclude up to $132,900 U.S. of Canadian or other foreign "earned" income in 2026.
  • The FEIE shelters the “earned income,” so you lose this tax credit 
  • In most cases, you’ll still pay no U.S. tax because you can use foreign tax credits instead—it’s more complicated, but this approach should be tested to see if it will get you the "Additional Child Tax Credit" refund

 

U.S. Resident Alien

 

  • A resident alien includes anyone visiting the U.S. who meets a “substantial presence test.”
  • If the sum of the days in the U.S. during the current year, plus 1/3 of the prior year, plus 1/6 of the year before that, totals 183 or more, AND at least 31 days were in the current year, then the person is a resident for U.S. tax purposes.
  • All of the days of "physical presence" in the U.S. count as one full day; even if it is only part of a day, you are present in the country.
  • What this means is that this person is now liable for U.S. federal income taxes on their Canadian and any other worldwide income. 
  • While they are also subject to Canadian taxes on the same income, the foreign tax credits they are entitled to based on U.S.-sourced income taxes they pay can be used to eliminate or minimize this double taxation exposure 
  • If present in the U.S. as a non-resident with fewer than 183 days in the current year, and with a "tax home" in Canada or another foreign country, file Form 8840 by June 15, 2027, with the IRS to claim non-resident status if the substantial presence calculation (factoring the three-year test above) would otherwise apply. This limits U.S. tax liability to U.S.-sourced income only, rather than worldwide income.

 

RENTAL OF U.S. PROPERTY

 

Property NOT USED Personally

 

  • Non-resident alien individuals are generally subject to 30% withholding on gross U.S. rents (not reduced under Canada-U.S. Treaty on real estate rental) 
  • Tenant obligated to withhold 
  • Can make “net rental election” to be taxed on net rental income (election is to treat rental income as “effectively connected with a U.S. trade or business”) 
  • The election is made with the filing of a 1040NR 
  • File Form W-8ECI “Certificate of Foreign Person's Claim the Income is Effectively Connected with the Conduct of a Trade or Business in the United States” to notify the withholding agent (i.e., tenant) that 30% withholding is not required.

 

Property ALSO USED Personally

 

  • If rented for less than 15 days a year, do not include rental income and do not deduct expenses. 
  • If used personally for more than 14 days or 10% of total rented days, divide expenses based on the number of days. Deductions may be restricted if a loss is created under passive activity rules.
  • If neither of these situations applies, passive activity loss rules could be the only restriction.
  • If you change from personal use to rental use, prorate yearly expenses. 
  • If not rented for profit, deduct only rental expenses up to the rental income.

 

U.S. Non-Resident Alien

 

  • If a non-resident alien sells their personal condo or other property in the tax year, the buyer of their condo is required to withhold and remit 15% of the proceeds to the IRS. The non-resident alien later files Form 1040NR to claim the U.S. gain or loss and the withholding tax paid, along with Form 8288-A showing U.S. withholding tax paid.
  • If they were resident aliens, there would be no tax withheld, and they would pay income tax on any capital gain they realize when they file Form 1040 with Form 1099-S showing the date of sale and the proceeds.

 

TAXATION OF U.S. NON-RESIDENTS

 

  • Non-residents file their tax return on Form 1040NR. 
  • Canadian’s are taxed only on U.S. source income on their U.S. Form 1040NR. 
  • Tax treatment of a U.S.-sourced income depends on whether the alien’s income is connected to a U.S. business. 
  • If income is “connected” to a U.S. business, it is taxed in the same manner as a U.S. citizen/resident.
  • Income not connected to a U.S. business is taxed at a flat rate of 30% unless a tax treaty reduces this rate.
  • Canada-U.S. tax treaty applies a tax rate of 15% on dividends, 0% on interest and 15% on pensions.

 

Filing Status

Non-resident aliens are limited as to the filing status they can claim. They can only file as:

  • Single resident of Canada or Mexico or single U.S. national
  • Other single non-resident alien
  • Married resident of Canada or Mexico or married U.S. national 
  • Married filing jointly (only if spouse is a U.S. citizen or resident alien and alien elects to be treated as a resident alien for the year)-in this case Form 1040 would be used
  • Married resident of South Korea
  • Other married non-resident alien 
  • Qualifying Widow with dependent child if they are a resident of Canada (7-point test) 

 

Personal Exemptions

  • For 2026, the personal exemption for yourself, spouse and each qualified dependent on your tax return is suspended until December 31, 2027. The offset is the increase in the standard deduction ($16,100-single under 65; $32,200 -married filing joint or qualified widow; $24,150-head of household) for taxpayers under age 65.
  • However, you still need to know that if someone (live in parent, unemployed brother, or someone else) has lived with you for more than half the year in 2026 and has income under $5,200 in 2026, this could be your dependent if you

 

2024 Deductions and Changes to note

  • Can claim certain itemized deductions-Schedule A if greater than the higher 2026 standard deduction
  • The state and local tax (SALT) deduction cap is $40,400 for most filers ($20,200 for married filing separately) in 2026, phasing down for taxpayers with modified AGI above $505,000, with a floor of $10,000.
  • Mortgage interest deduction capped at $750,000 loan balances after December 14, 2017 (up to $1 million for loans existing before December 15, 2018) place for joint returns for up to two (2) residences based on acquisition, or build, repair or replacement of home costs
  • No interest deduction is permitted for home equity lines of credit unless the funds are used to build, repair or replace part of the home.
  • Medical expenses are deductible only to the extent they exceed 7.5% of adjusted gross income (AGI).Charitable contributions to public charities can be deducted up to 60% of AGI if itemizing, subject to a new 0.5%-of-AGI floor introduced by OBBBA.
  • Casualty and theft losses can only be claimed if they result from a federally declared disaster in 2026.
  • There is no phase-out of itemized deductions based on AGI, though a new limitation caps the tax benefit of itemized deductions for taxpayers in the top 37% bracket.
  • The Form 2106 deduction for unreimbursed employee expenses remains eliminated.
  • The IRA deduction is up to $7,500 for taxpayers under 50, or $8,600 for those 50 and older (including the $1,100 catch-up contribution).
  • Self-employment health insurance deduction is available.
  • Alimony is no longer a deduction to the payer or income to the recipient in 2018 or new divorce contracts thereafter.
  • Deduction for excluded scholarship and fellowship grants remain available.
  • The Alternative Minimum Tax (AMT) exemption for 2026 is $140,200 for joint returns and $90,100 for individuals and heads of household, phasing out starting at income above $1,000,000 for joint filers and $500,000 for individuals, heads of household, and married filing separately.

Credits

  • Can claim credits for taxes paid and taxes withheld 
  • Foreign tax credit (Form 1116)

Withholding

  • If a tax treaty would reduce a non-resident’s taxes, the alien can have the withholding taxes levied against that income reduced to reflect the lower treaty tax rate. 

 

Payments

  • Form 1042-S-tax withheld
  • Form 8288-A-tax withheld from property sale 
  • W-2 federal tax withheld Taxes Treaty income is income that is subject to a reduced tax rate under the terms of a treaty; the remainder of U.S. sourced income is called non-treaty income 

 

The alien's tax is the sum of:

  1. Tax on treaty income calculated at the Treaty rate 
  2. Tax on non-treaty income that is effectively connected with a U.S. trade or business calculated at U.S. graduated tax rates, and
  3. Tax on non-treaty income that is not connected to a trade or business calculated at a flat rate of 30% or lower treaty tax rate

 

Contact Marlies Hendricks

Ready to get started? Let the Certified Public Accountants working with Marlies Hendricks, CPA assist you with your cross border tax service needs. We look forward to speaking with you soon.  This information is of a general nature and should not be relied upon in the absence of professional advice.

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