Do I need to declare foreign income below the foreign earned income exclusion?

Question

At the beginning of April 2023 I obtained my green card and became a US resident (resident alien). I resigned my position in Canada and started employment with a US entity.

January - April

• Canadian resident, employed in Canada and paid by a Canadian company

April - December

• US resident, employed in US and paid by a US company

During 2023 I received 4 dividend checks (January, March, June, September) from a Canadian company. These checks were paid to my Canadian bank account and I received a T5 for them.

I completed my Canadian tax return as a non-resident: I supplied my T1 and T5, and declared my "worldwide" income (the money I earned in the US from April to December).

My questions pertain to my US tax return:

• Do I need to declare the foreign income I made in the year prior to becoming a US resident (salary until April and two dividend checks)?
• Do I need to declare the foreign income I made in the year post becoming a US resident (two dividend checks)?
• If I need to declare it, how do I do that? What form(s) do I need to fill?

My total foreign income is below the $120,000 threshold for the Foreign earned income exclusion so as I understand it, the US should not tax me on this money.

But even if I don't owe taxes on this income in the US, it seems to me that I should declare at least the portion earned after becoming resident. How can I do that? I haven't been able to figure this out, and unfortunately the employee at my local tax filing place was equally clueless.

Answer 1

Do I need to declare the foreign income I made in the year prior to becoming a US resident (salary until April and two dividend checks)?

Since you passed the substantial presence test, and also the green card test, you're considered US tax resident. If you hadn't passed the substantial presence test, you could have filed as part-time resident, only considering world wide income from the time you became a green card holder. But, if you pass both - you're a tax resident for the whole year:

If you meet the green card test at any time during the calendar year, but do not meet the substantial presence test for that year, your residency starting date is the first day on which you are present in the United States as a lawful permanent resident.

Since you're a US tax resident for the whole year, US taxes all your worldwide income for the whole year, including the income earned in Canada in the first quarter.

Do I need to declare the foreign income I made in the year post becoming a US resident (two dividend checks)?

Yes.

If I need to declare it, how do I do that? What form(s) do I need to fill?

You do it on the same forms you declare all your other income - form 1040 and its schedules. Dividends are reported on Schedule B, salary is reported on the form 1040 itself (line 1a or 1h).

You can also potentially use your Canadian taxes paid for a credit against the US taxes, using the form 1116.

For the salary earned in Canada, check if you qualify for the Foreign Earned Income Exclusion. It may or may not be more beneficial than the foreign tax credit (you can only use one of them for the same income). Foreign Earned Income Exclusion doesn't apply to dividends, interest, or any other income that's not earned (i.e.: compensation for personal services).

As always in these questions - don't forget your FATCA and FBAR obligations. Also check if the US-Canadian tax treaty is relevant to you in any of its provisions.