Coronavirus stimulus package and citizenship: The give and take of being a U.S. taxpayer

So, you’re a U.S. citizen in Canada and perhaps still on the fence as to whether you want to make it official by filing an annual U.S. tax return. It’s a tough decision. You don’t live there. Maybe you never have and never will. I won’t get into the details of why the Internal Revenue Service thinks you should start filing. I will tell you that there has never been a better time to be a U.S. citizen…particularly one who doesn’t live there.

In recent days, U.S. president Donald Trump signed a $2 trillion economic relief bill in an attempt to stave off hardship for the many millions of Americans affected by the pandemic. The pandemic is, of course, the bad news. The good news is that U.S. citizens with a social security number could be eligible to receive a stimulus check, no matter where you are residing.

There may be a few other financial perks under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) for you too. Here’s a quick overview of items that would be of interest to Americans abroad.

Stimulus checks

First thing’s first. In order to receive a stimulus check, you must be current on your U.S. tax returns. The amount of the check is based on your income for either 2018 or 2019, depending on whether your 2019 taxes are done before an assessment is made.

Single taxpayers with a social security number will get $1,200 if they made $75,000 or less. Married couples making less than $150,000 combined will receive $2,400. Payments will be increased by $500 for each dependent child under the age of 17. Payments decrease by $5 on every $100 dollars over the $75,000 or $150,000 threshold up to $99,000 or $198,000 and then the payment is phased out altogether.

As a U.S. citizen, you wouldn’t even have to apply. Payment is made automatically if the IRS has your banking information. If not, the IRS will send a check to the most recent address listed on your return.

Retirement funds

Own a 401K or other U.S. individual retirement account? You won’t be forced to take a minimum distribution in 2020. This way, you aren’t put in a position to have to sell investments at a time when the market is…well…less than favorable.

In the event that you actually need more than the minimum distribution this calendar year, you can withdraw up to $100,000 without penalty. The caveat is that the penalty-free withdrawal only applies if it is a direct result of the Coronavirus (i.e. you, a spouse, or a dependent tested positive, or you suffered financially because of the pandemic).

If you do take a larger distribution, any applicable income taxes owed can be spread out over three years from the date the distribution was taken. In addition, you can return the money to

the account before the end of that three-year period without worrying about the size of the contribution, as you normally would.

Charitable donations

If you wish to support the community and a cause that is close to your heart, and you are feeling particularly charitable in light of current world events, this is a great time to give.

The CARES Act introduces a new deduction for up to $300 in charitable contributions per year, which apparently extends beyond the 2020 taxation year. The deduction is only available to people who don’t itemize deductions and is calculated by subtracting the donation amount from gross income. There are stipulations around the donation, including that it must be a cash donation to a qualified charity and not a donor-advised fund. Under the Canada-US Income Tax Treaty, Americans residing in Canada should be eligible for this deduction even when they contribute to a Canadian charity.

For 2020, 100 percent of cash donations made to public charities are deductible. So, if you donate a million dollars you can deduct a million from your gross income for 2020.

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It’s important to remember that there is no such thing as free money…unless you win the lottery….in Canada. The U.S. stimulus check is actually considered an interest-free loan against your 2020 tax refund and the Canada Emergency Response Benefit (CERB) is a taxable benefit to be reported on your 2020 income tax return. Money received from the Canadian stimulus package must also be reported on your U.S. tax return as it is considered worldwide income. However, as most Canadian source income, CERB benefits will be eligible for a foreign tax credit when reported on the US return.

If you are a U.S. taxpayer with questions, reach out to HCBT any time for clarification. If you are not a U.S. taxpayer but would like to become one (because who wouldn’t?), we can help you with that as well.