US Citizens in Canada Receive Tax Free COVID Payment

Evelyn Jacks

U.S. tax filers, including American Citizens living in Canada, will have received Economic Income Payments (EIP) based on income levels reported on their 2018 and 2019 tax returns filed in the U.S. Now CRA has confirmed in a technical bulletin issued August 31 that there is more good news:  the payments will not be taxable to residents in Canada.

CRA has concurred that Canadian resident individuals will not be required to include these payments as income under the Income Tax Act.  This is because the amount is actually considered an advanced refund or credit for 2020 under Section 2201(a) of IRS’s Pub. Law 116-136 of the CARES Act.  Advisors should check out new Section 6428, there which refers to the Recovery Rebates for Individuals.   

The payment amounts received were a surprise to many US citizens living in Canada.  They amounted to $1200 and an additional $500 US for each qualifying child.   An eligible individual was someone who filed a 2018 or 2019 tax return and had adjusted gross income of up to $150,000 US for joint filers, $112,500 for Head of Household filers and $75,000 for Single filers.  Married couples could qualify for $2400 US if filing jointly.  A phase out of benefits is possible when income exceeds these thresholds.

Note that for non-filers, largely those receiving payments from the Social Security Administration, Railway Retirement Board or Department of Veteran Affairs, it is possible to register for the payments by October 15 under a new non-filers tool available at www.irs.gov.      

US citizens living in Canada qualify for a Foreign Earned Income Exclusion of up to $103,900 US in 2018 and $105,900 US in 2019 when filing in the US and this can impact their payments. 

Dr. Dean Smith will cover these opportunities at the September 30, 2020 Virtual CE Summit.  Visit the webpage for details and to register.

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