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After my fight with the USA taxes it turns out that there's a rebate! It still isn't worth the hassle though!

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.

Paying the Piper Accountant

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.

Article comments

Joe says:

LOL welcome to Obama’s America.

Did you save money? Did you INVEST?? FAT CAT CAPITALIST, fill out reams of paperwork and pay your penalty!!!

Oh, you didn’t work much last year? Didn’t earn enough money? Poor you, here’s $400.

Teacher Man says:

Hey, I’m whoever’s America would allow me to visit a country that I really love without having to fill a crazy amount of tax paper work when I have never earned a penny there in my life!

I’m actually a personal fan of the guy… I think. Maybe it’s just because he’s good at basketball…

Honestly, a big reason the US tax code will not be reformed is because of the accountant lobby. Accountants are huge winners in the current tax code because it’s complicated and takes specialized knowledge (at times) to file. It’s unfortunate but I don’t see it changing anytime soon.

Teacher Man says:

I could honestly see this. I’m not much for conspiracy theories, but after struggling through 40 odd hours of brain-numbing work, and still paying over $300 for advice I can see just how beneficial it really is. You don’t see it coming soon eh, even with all this tax reform talk I keep hearing about?

Welcome to the wonderful and weird world of government taxation, there have been stories of people simply paying the tax owing rather than fighting the US government on this!

Which brings up the obvious the US is the only country that taxes on citizenship rather than residency. The main difference I notice from the US/Canada to Europe regarding taxes isn’t so much rates, slightly higher but social security taxes, they are a killer here very very expensive.

One thing I wish Canada would adopt is a hidden VAT, yes it’s higher here (21-25% on average) but since it’s buried in the price you don’t notice and things are that much more expensive here (at least if you pay in Euros:)

Teacher Man says:

No use fighting them when they will be paying me right! Is the USA the only country? I thought there were a couple others. I guess I see why they try to do it in terms of limiting all of these huge net worth types and trying to make sure they pay their fair share, but it sure doesn’t look like they are succeeding.

I’m a HUGE fan of the VAT. You simply can’t dodge that one with offshore accounts or anything like that. That’s actually one of the only major gripes I have about the current government in Canada, they slashed our current tax 2% and that money would have went a long way these days. That unfortunately is a classic case of a democracy not understanding taxation properly and consequently being pandered to with a policy that makes no long term sense.

Shoot! That’s a lot of money to get taxes filed! In 2009 and 2010, a lot of working Americans qualified to file a schedule M for the Making Work Pay Tax Credit. It was part of the stimulus. If you had received other stimulus money throughout the year (e.g. some military members did) you had to deduct that amount from the credit you would have received. It’s amazing how many people I know that didn’t file for it, even though I bugged them to look into it…one extra piece of paper for $400? Come on. Their qualifiers for working “poor” were very loose…so I wouldn’t worry too much about the label. 🙂

Teacher Man says:

That basically confirms what I read them FF, thanks! I didn’t even file anything extra asking for the credit specifically, they just calculated it and gave it to me. I think the whole thing is really funny in an abstract way when you consider how much money the USA lost on me when all things are considered.

Haha, it does seem somewhat karmic justice that the US govt gave you a refundable tax credit that was almost identical to what you owed your accountant.

If you don’t want to deal with the headache of the IRS, have you ever considered revoking your citizenship? Since it seems like you don’t want to move here or anything… Just a consideration as then you wouldn’t have to deal with this ever again!

Teacher Man says:

Karmic justice indeed!

I have definitely considered renouncing my citizenship Mrs. Pop. The really sad thing about that is that I was always proud to be a duel citizen. I love the USA! I would consider myself a little more Canadian than American, but I wouldn’t want to give up my citizenship without crazy incentive to do so. That being said, if I were single I would probably renounce. The real problem is that my long time girlfriend is also a duel citizen and she grew up in the USA and considers herself at least as American as Canadian. Plus, we both have a lot of family on both sides of the border and we’ve heard horror stories about how former citizens are treated at the border. It isn’t worth the risk for us right now. The whole thing has left a terrible taste in my mouth to say the least.