Go Back  British Expats > Living & Moving Abroad > USA
Reload this Page >

What classes as income for a student?

What classes as income for a student?

Old Oct 5th 2014, 6:56 pm
  #1  
Forum Regular
Thread Starter
 
Joined: May 2011
Posts: 68
texasjan is an unknown quantity at this point
Default What classes as income for a student?

Hubby & I are currently in US with green cards. We are shortly moving to Canada with work (have filed 131 to preserve status!) When we leave our daughter will stay in US as she is attending college. Problem is she will lose her medical coverage through hubbys work. I have been on the healthcare marketplace to see about buying her coverage. BUT what is her income? We pay her college fees, rent an apartment for her, give her an allowance. Is that all her income? Even though it comes out of our taxed income?
However I know what parents provide is not counted on the FAFSA and we can gift $14000 a year.
Appreciate any thoughts!
texasjan is offline  
Old Oct 5th 2014, 7:06 pm
  #2  
BE Enthusiast
 
Joined: Nov 2007
Posts: 904
cranston has a reputation beyond reputecranston has a reputation beyond reputecranston has a reputation beyond reputecranston has a reputation beyond reputecranston has a reputation beyond reputecranston has a reputation beyond reputecranston has a reputation beyond reputecranston has a reputation beyond reputecranston has a reputation beyond reputecranston has a reputation beyond reputecranston has a reputation beyond repute
Default Re: What classes as income for a student?

I don't think parental gifts count as income on FAFSA. I think its safe to define "income" for FAFSA as earnings that are reported to the IRS on their tax form.
cranston is offline  
Old Oct 5th 2014, 7:28 pm
  #3  
Lost in BE Cyberspace
 
Joined: Jan 2008
Posts: 41,518
Sally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond repute
Default Re: What classes as income for a student?

Parental gifts do not count.

You have to weigh up whether to take her off your tax return and she will then most likely qualify for Medicaid if she has had a green card for 5 years.
Sally Redux is offline  
Old Oct 8th 2014, 9:07 pm
  #4  
Forum Regular
Thread Starter
 
Joined: May 2011
Posts: 68
texasjan is an unknown quantity at this point
Default Re: What classes as income for a student?

Originally Posted by cranston View Post
I don't think parental gifts count as income on FAFSA. I think its safe to define "income" for FAFSA as earnings that are reported to the IRS on their tax form.
Hmmn that's what I am stumped on. She would normally have been a dependent on our return, but now she will file as single I guess. I don't know how to define her 'income'? It has mostly been what we have given her.
texasjan is offline  
Old Oct 8th 2014, 9:52 pm
  #5  
Lost in BE Cyberspace
 
Joined: Jan 2008
Posts: 41,518
Sally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond reputeSally Redux has a reputation beyond repute
Default Re: What classes as income for a student?

It is not as straightforward in Texas (assuming that's where your daughter is) as it's federally run. But in California, I found that telephoning the helpline was very useful. Tell them your daughter's situation and they will be able to advise.

Or you could look at plans offered through her university, although that was a very poor and expensive option at my son's place at least she'd have something.
Sally Redux is offline  
Old Oct 9th 2014, 12:19 am
  #6  
Grumpy Know-it-all
 
Steve_'s Avatar
 
Joined: Jul 2010
Location: Calgary, Alberta
Posts: 8,928
Steve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond repute
Default Re: What classes as income for a student?

Originally Posted by texasjan View Post
BUT what is her income? We pay her college fees, rent an apartment for her, give her an allowance. Is that all her income? Even though it comes out of our taxed income?
Giving money to someone to go to college could be considered income, the IRS considers money given to a foreign student by their parents to be reportable income, which is why there are tax treaty provisions and students file Form 8843 to be considered non-resident aliens while in college, thus avoiding US income taxes on the money they receive from abroad.

However if you're an LPR, you're resident for tax purposes, so the gift tax provisions come into force. You said you're moving to Canada, this could be a problem because being an LPR you are exactly that, a permanent resident and you cannot move your tax home abroad. Regardless, the amounts you give to your daughter are considered gifts and subject to gift tax, there is an exemption of $14,000 pa, given that you're married you can double that to $28,000.

This is why the various things like 529 and ESA accounts can make sense.

I think your bigger problem actually is your tax status in Canada, depends on who you're working for, etc. but usually you cannot move your tax home abroad as an LPR, you have to be a US citizen first. This is why they ask the question on N-400:

7. A. Have you ever not filed a Federal, State, or local tax return since you became a Permanent Resident?
B. If "Yes," did you consider yourself to be a "non-U.S. resident"?
8. Have you called yourself a "non-U.S. resident" on a Federal, State, or local tax return since you became a Permanent Resident?
Technically you can be considered to have abandoned your status.

Even as a US citizen you have to file a US tax return each year but you can claim to live abroad. Read IRS publication 519 for more information: http://www.irs.gov/pub/irs-pdf/p519.pdf The relevant bit is the resident alien determination on page 3. IRS publication 54 also tells you how to file from abroad, but they don't go into detail about your tax home in that one.
Steve_ is offline  
Old Oct 9th 2014, 2:07 am
  #7  
JAJ
Retired
 
JAJ's Avatar
 
Joined: Apr 2004
Posts: 34,649
JAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond repute
Default Re: What classes as income for a student?

Originally Posted by Steve_ View Post
Giving money to someone to go to college could be considered income, the IRS considers money given to a foreign student by their parents to be reportable income, which is why there are tax treaty provisions and students file Form 8843 to be considered non-resident aliens while in college, thus avoiding US income taxes on the money they receive from abroad.
Really? A receipt of a gift is not reportable income.
As for form 8843, etc., the daughter in this case is an LPR so not clear why such a suggestion would ever be made ...

However if you're an LPR, you're resident for tax purposes,
For gift and estate tax purposes, it's based on domicile rather than residence. An LPR can in theory be non-U.S. domiciled for estate/gift tax purposes. (a United States citizen is always deemed U.S. domiciled).


so the gift tax provisions come into force. You said you're moving to Canada, this could be a problem because being an LPR you are exactly that, a permanent resident and you cannot move your tax home abroad. Regardless, the amounts you give to your daughter are considered gifts and subject to gift tax, there is an exemption of $14,000 pa, given that you're married you can double that to $28,000
Why should gift tax be a problem? The tax free band (for those who are U.S. domiciled) is over $5m. All they would need to do if giving more than the $14k annual threshold is file a return with the IRS to document the use of the $5m+ estate/gift tax threshold.

If it turns out they're not U.S. domiciled, then only gifts of U.S. situate property would normally be taxable, although the thresholds are much lower.

What should be a more significant concern for the future is that they are LPR, so if they lose or abandon their LPR status in the future, and if they are treated as "long term residents" then they could in turn become "covered expatriates".

One of the consequences of being a covered expatriate - not yet enforced by the IRS apparently, but part of the law - is a special inheritance tax on future bequests to a U.S. citizen/resident.



I think your bigger problem actually is your tax status in Canada, depends on who you're working for, etc. but usually you cannot move your tax home abroad as an LPR, you have to be a US citizen first.
In theory a green card holder who claims the Foreign Earned Income Exclusion (FEIE) could be held to have abandoned residence in the United States as a result. It's not clear if this has ever been enforced. But it would certainly be advisable for LPRs temporarily outside the United States to take (immigration) legal advice before claiming FEIE. In Canada, 90%+ of the time, it would be simpler to forget claiming FEIE and simply gain relief from Canadian taxes through the Foreign Tax Credit mechanism.
JAJ is offline  
Old Oct 9th 2014, 12:56 pm
  #8  
Forum Regular
Thread Starter
 
Joined: May 2011
Posts: 68
texasjan is an unknown quantity at this point
Default Re: What classes as income for a student?

thanks for the info. We will continue to file a US tax return each year as we will be renting our US house. Also we have the travel document 131, just to cover our longer term absence until we return.
texasjan is offline  
Old Oct 10th 2014, 2:19 am
  #9  
JAJ
Retired
 
JAJ's Avatar
 
Joined: Apr 2004
Posts: 34,649
JAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond repute
Default Re: What classes as income for a student?

Originally Posted by texasjan View Post
thanks for the info. We will continue to file a US tax return each year as we will be renting our US house. Also we have the travel document 131, just to cover our longer term absence until we return.
As far as I understand, the re-entry permit covers you for a 2 year absence (increased from the usual 12 months), as long as you maintain a residence within the U.S (however loosely defined). But if you're in Canada, presumably you will not be outside the U.S. continuously for 2 years. Visits to the U.S., business trips, cross-border day trips across the border, etc?

The re-entry permit is still a good thing to have, however.

Separately, you should consider the impact your absence may have on your eligibility for naturalization (if that is important).
JAJ is offline  
Old Oct 10th 2014, 2:49 am
  #10  
Forum Regular
Thread Starter
 
Joined: May 2011
Posts: 68
texasjan is an unknown quantity at this point
Default Re: What classes as income for a student?

Originally Posted by JAJ View Post
As far as I understand, the re-entry permit covers you for a 2 year absence (increased from the usual 12 months), as long as you maintain a residence within the U.S (however loosely defined). But if you're in Canada, presumably you will not be outside the U.S. continuously for 2 years. Visits to the U.S., business trips, cross-border day trips across the border, etc?

The re-entry permit is still a good thing to have, however.

Separately, you should consider the impact your absence may have on your eligibility for naturalization (if that is important).
We were just originally intending to do cross-border visits to keep green card active. But on chatting to attorney decided to go re-entry permit (hey they getting paid by company!)
thanks we do realize there may be an impact on naturalization, but for now pay check in the bank works and we have no hurry.
Appreciate all the input!
texasjan is offline  
Old Oct 10th 2014, 3:40 am
  #11  
SUPER MODERATOR
 
Jerseygirl's Avatar
 
Joined: Dec 2005
Posts: 82,820
Jerseygirl has a reputation beyond reputeJerseygirl has a reputation beyond reputeJerseygirl has a reputation beyond reputeJerseygirl has a reputation beyond reputeJerseygirl has a reputation beyond reputeJerseygirl has a reputation beyond reputeJerseygirl has a reputation beyond reputeJerseygirl has a reputation beyond reputeJerseygirl has a reputation beyond reputeJerseygirl has a reputation beyond reputeJerseygirl has a reputation beyond repute
Default Re: What classes as income for a student?

Originally Posted by JAJ View Post
As far as I understand, the re-entry permit covers you for a 2 year absence (increased from the usual 12 months), as long as you maintain a residence within the U.S (however loosely defined). But if you're in Canada, presumably you will not be outside the U.S. continuously for 2 years. Visits to the U.S., business trips, cross-border day trips across the border, etc?

The re-entry permit is still a good thing to have, however.

Separately, you should consider the impact your absence may have on your eligibility for naturalization (if that is important).
My daughter went to Uni in Canada...she came home to New Jersey every month or so for a long weekend...including 3 months in the summer and 3 weeks at Christmas and NY. Her car was registered and insured in the US (she travelled back and to by car)...she had US bank and credit cards. During her third year at Uni she was told she needed a re-entry permit...and that a note was being put on her file and she wouldn't be allowed entry without it.

She didn't apply for the permit as her next trip to the U.S. was to attend her US citizenship interview and oath ceremony. She carried the appointment letter with her upon entry.

So yes...a re-entry permit is a good thing to have.
Jerseygirl is offline  
Old Oct 10th 2014, 8:46 pm
  #12  
Grumpy Know-it-all
 
Steve_'s Avatar
 
Joined: Jul 2010
Location: Calgary, Alberta
Posts: 8,928
Steve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond repute
Default Re: What classes as income for a student?

Originally Posted by JAJ View Post
Really? A receipt of a gift is not reportable income.
As for form 8843, etc., the daughter in this case is an LPR so not clear why such a suggestion would ever be made ...
I said it applies to non-resident aliens, not LPRs. And yes the IRS do consider money given to a foreign student in the US as income hence the need to file 8843.

For gift and estate tax purposes, it's based on domicile rather than residence. An LPR can in theory be non-U.S. domiciled for estate/gift tax purposes. (a United States citizen is always deemed U.S. domiciled).
In theory. A permanent resident means exactly that, so I think it would be a hard one to pull off, plus the US-Canada estate tax treaty applies - there is a determination made under that treaty by a committee if there's any dispute and I'm pretty sure they'd come down on the side of your being resident in the US for estate tax purposes if you're an LPR, unless of course you abandon or give up the status.

Why should gift tax be a problem? The tax free band (for those who are U.S. domiciled) is over $5m. All they would need to do if giving more than the $14k annual threshold is file a return with the IRS to document the use of the $5m+ estate/gift tax threshold.
True, I forgot that bit, you need to document it on the return. I was thinking of a non-paperwork way.

What should be a more significant concern for the future is that they are LPR, so if they lose or abandon their LPR status in the future, and if they are treated as "long term residents" then they could in turn become "covered expatriates".

One of the consequences of being a covered expatriate - not yet enforced by the IRS apparently, but part of the law - is a special inheritance tax on future bequests to a U.S. citizen/resident.
True, but it doesn't sound as though they've been in the US for eight years though.

In theory a green card holder who claims the Foreign Earned Income Exclusion (FEIE) could be held to have abandoned residence in the United States as a result. It's not clear if this has ever been enforced. But it would certainly be advisable for LPRs temporarily outside the United States to take (immigration) legal advice before claiming FEIE. In Canada, 90%+ of the time, it would be simpler to forget claiming FEIE and simply gain relief from Canadian taxes through the Foreign Tax Credit mechanism.
The reason I made a point of mentioning it is that the CRA and the IRS can directly access each other's records quite easily, I know this from personal experience. So the "bullshit the IRS" strategy will not work if you move to Canada, they can easily look up your Canadian tax records and vice versa.

There is caselaw on it, I remember reading it somewhere, think it was on the USCIS website, this is why they put the question on N-400 as it has come up in hearings when people show up at the border and CBP refer them to an immigration hearing to determine if their LPR status is still valid. "Where do you file your taxes?" "Do you claim to be non-resident on your US return?" The IJ may well ask those questions which is why they're on the form.

The problem being of course that unless it's a short-term assignment, you've got to file taxes where you are living, and there's no way of hiding that if you're living in Canada.
Steve_ is offline  
Old Oct 10th 2014, 9:11 pm
  #13  
Grumpy Know-it-all
 
Steve_'s Avatar
 
Joined: Jul 2010
Location: Calgary, Alberta
Posts: 8,928
Steve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond reputeSteve_ has a reputation beyond repute
Default Re: What classes as income for a student?

Originally Posted by texasjan View Post
thanks for the info. We will continue to file a US tax return each year as we will be renting our US house. Also we have the travel document 131, just to cover our longer term absence until we return.
Be aware this doesn't solve the tax problem. You can't file as non-residents in Canada for more than 183 days, the CRA won't let you (with certain very limited exceptions that may apply, you should look into it, you may be able to claim you're still US residents under Article 4 of the tax treaty). And you can't file as non-residents in the US, this threatens your status potentially. So you face dual taxation by being residents of two countries for tax purposes. And you can't claim a foreign tax credit in either country to get around it, because the CRA and the IRS will compare notes and most likely come to the conclusion you're resident in Canada, because you are.

Notice the wording of the question on N-400:

Have you called yourself a "non-U.S. resident" on a Federal, State, or local tax return since you became a Permanent Resident?
Doesn't say in the last 5 years... says "since you became" a permanent resident. However long that may have been. Answer yes and you've got a problem.

The reason I make this point to you is because I've been forced to sit in secondary inspection on many occasions and I've witnessed the following scenario unfold - people drive up to booth, CBP inspector asks them where they live, Canada they reply, but you have green cards, yes we do, okay then proceed to secondary inspection.

So they walk in and the guy at secondary quizzes them about how long they've been out of the US and where their principal residence is, and they get referred to an immigration hearing. Having AP makes this less likely but it can still happen if you're out of the country long enough.

Long story short, pretending to still be resident in the US when you in fact live abroad is going to be hard to pull off the longer you do it.
Steve_ is offline  
Old Oct 11th 2014, 1:10 am
  #14  
JAJ
Retired
 
JAJ's Avatar
 
Joined: Apr 2004
Posts: 34,649
JAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond repute
Default Re: What classes as income for a student?

Originally Posted by Steve_ View Post
I said it applies to non-resident aliens, not LPRs. And yes the IRS do consider money given to a foreign student in the US as income hence the need to file 8843.
Really? A receipt of a gift is taxable income? Where exactly do the IRS suggest that?

Form 8843 is to establish exempt status, since many foreign students do have taxable income. But nothing says that gift receipts are ever taxable income.

Forum myth, perhaps?



In theory. A permanent resident means exactly that, so I think it would be a hard one to pull off, plus the US-Canada estate tax treaty applies - there is a determination made under that treaty by a committee if there's any dispute and I'm pretty sure they'd come down on the side of your being resident in the US for estate tax purposes if you're an LPR, unless of course you abandon or give up the status.

An LPR is likely presumed domiciled in the U.S. unless the facts state otherwise. However, unlike residence for income tax purposes, it is not automatic. An LPR who has clearly abandoned any intention to live in the United States (but who has not formally surrendered LPR status), would still be resident for income tax purposes. But not necessarily for estate tax purposes.

Normally, however, most people would want to be treated as U.S. domiciled for estate tax purposes. Since the U.S. threshold is $5m+, but the threshold for non-domiciled persons with U.S. situate assets is only $60k or so.

Originally Posted by Steve_ View Post
Be aware this doesn't solve the tax problem. You can't file as non-residents in Canada for more than 183 days, the CRA won't let you (with certain very limited exceptions that may apply, you should look into it, you may be able to claim you're still US residents under Article 4 of the tax treaty). And you can't file as non-residents in the US, this threatens your status potentially. So you face dual taxation by being residents of two countries for tax purposes. And you can't claim a foreign tax credit in either country to get around it, because the CRA and the IRS will compare notes and most likely come to the conclusion you're resident in Canada, because you are.
This may be unintentional, but comes across as forum scaremongering at its worst. Of course an LPR who spends time in Canada, and has to file Canadian taxes, can take a foreign tax credit on a U.S. tax return. I have never once heard anything suggesting others.

Notice the wording of the question on N-400:


Quote:
Have you called yourself a "non-U.S. resident" on a Federal, State, or local tax return since you became a Permanent Resident?


Doesn't say in the last 5 years... says "since you became" a permanent resident. However long that may have been. Answer yes and you've got a problem.

However, filing a U.S. tax return as a resident while then claiming a Foreign Tax Credit is not a problem.


Originally Posted by Steve_ View Post
So they walk in and the guy at secondary quizzes them about how long they've been out of the US and where their principal residence is, and they get referred to an immigration hearing. Having AP makes this less likely but it can still happen if you're out of the country long enough.
Except they don't have AP (Advance Parole), they have a Re-Entry permit. Something completely different. And although it's theoretically possible that a person with a Re-Entry permit may be challenged if returning with less than 2 years absence since last departure, it's really, highly unlikely. I know a lot of forum discussion focuses on theory, assumes worst-case scenario, etc., but this doesn't always reflect what goes on in the real world.

Last edited by JAJ; Oct 11th 2014 at 1:15 am.
JAJ is offline  
Old Oct 11th 2014, 1:20 am
  #15  
JAJ
Retired
 
JAJ's Avatar
 
Joined: Apr 2004
Posts: 34,649
JAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond reputeJAJ has a reputation beyond repute
Default Re: What classes as income for a student?

Originally Posted by texasjan View Post
We were just originally intending to do cross-border visits to keep green card active. But on chatting to attorney decided to go re-entry permit (hey they getting paid by company!)
The re-entry permit is definitely a good thing to have. As far as I understand, it does two things, a. increase the time interval between trips to the U.S. from 1 to 2 years, and b. (more importantly) creates a strong presumption of maintaining a U.S. residence. You still have to maintain a U.S. residence, howsoever defined (including Federal tax returns), but the re-entry permit helps a lot to establish this.

You can (and should) still take cross border trips and your mindset should be that home is still in the U.S. and your presence in Canada is temporary. You attorneys can probably advise further but I have never heard of someone with a valid re-entry permit, and less than 2 years absence, having any problems with re-admission as a permanent resident.
JAJ is offline  

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Contact Us - Archive - Advertising - Cookie Policy - Privacy Statement - Terms of Service - Do Not Sell My Personal Information -

Copyright © 2018 MH Sub I, LLC dba Internet Brands. All rights reserved. Use of this site indicates your consent to the Terms of Use.