I felt like I needed to provide some closure to the gong show that is my USA tax situation. For those of you recently joining this program that is already in progress you can check out the full backstory as to why my common-law wife and I need to file tax returns in the USA here. The short version is that the USA is bullying Canadian financial institutions into showing our bank accounts under FATCA legislation beginning next year (if they want to do business in the lucrative USA market they have to do as big brother says). When combined with the fact that I am a USA citizen, but have never been a USA resident or earned a penny in the USA, you have a very frustrating tax filing burden. Anecdotally, it is very possible for someone to have USA parents, and thus be considered USA citizens by the IRS and at the same time never actually have set foot in the USA! These individuals have to file 5 years’ worth of back taxes just like the rest of us.
I wrote a couple different columns about the sheer craziness of the fact I had to use the incredibly inefficient USA 1040 for my tax returns and how it was going to cost the USA more money to check all of our returns than they were going to net from taxing us. Canada is not a tax haven, and those people smart enough to be hiding money in our country will obviously be smart enough to transfer it somewhere else before the deadline comes up. It’s kind of like when they warn my students that the drug dog will be in on Friday. They might not be geniuses, but they can certainly figure out what to do in that situation. Consequently, I was fairly certain that the whole process was self-defeating.
Great Job Collecting Revenue There IRS
Now, I am more sure than ever about that fact. After dozens of hours spent poring over the returns of both my girlfriend and myself I was understandably shaky when I got a return envelope from the IRS last week. My accountant had told me that unlike in Canada, the USA government only sent out correspondence if they thought you owed them more, or if there was some sort of other discrepancy. When I saw the IRS document my head immediately swam with nightmares about doing something wrong that would result in a protracted paper war that at best would waste much more of my time and at worst could cut into my young bank account as well. Imagine my surprise when I pulled open the envelope only to find a $400 cheque from the USA government. There must be some mistake I thought to myself, why would the government owe me money?
Who Knew I Was a Working Poor American?
Well apparently there was some sort of “working poor” tax credit-esque thing in 2010 in the USA. I read a little about it, but to be honest I’m so sick of reading IRS stuff that I simply went and cashed my cheque without delving into the details of why exactly I got the money. From what I can gather, in 2010 I only worked for 4 months due to the fact I finished post-secondary schooling and began teaching; subsequently, I didn’t earn a whole lot of net income that year. The US government likely wanted to reward people who didn’t earn much money, but were working full-time through their tax system. So as an unintended consequence they paid a guy $400 that has never worked or lived in the USA, plus they paid some poor analyst a lot of money to go over five years of fairly confusing 1040s (due to my RESP income) as well as my girlfriend’s returns. I find the whole thing hilarious if more than a little frustrating. I even commented to my parents that I should offer to let them keep their own taxpayer money (lord knows that they need it) if they simply left me alone forevermore. Sadly I don’t think bureaucracies work this way.
Now I would feel like this was some sort of moral victory if I didn’t get the bill from the accountant I worked with a couple days later. For roughly an hour-and-a-half of her time (although I did the vast majority of the leg work myself, I needed some advice on a couple of key interpretations on certain types of income), her company charged almost $350! When I called to double check the number she said that it was correct and that despite the exorbitant fee they were charging for her services (she herself doesn’t get nearly as much of that money as one would expect) they simply couldn’t keep up with demand as Canadians everywhere continued to be terrified of the long arm of the IRS. The end result is that the only real winners in this scenario are the specialized accountants whose services are in higher demand than ever before, and the lawyers who are needed to sort out the cross-border mess that many tax filings result in. Hmm… accountants and lawyers are the only ones to benefit – if I had a nickel for every time I seen that situation I could almost pay for my filing costs next year.