# Student Tax Benefit for US Return



## sabad66 (Apr 14, 2014)

Hi All,
I am a dual US-Canada citizen that has lived/worked in Canada my whole life and never in the US. I have never filed a US tax return, and I am working on completing the streamlined process to get caught up on my US taxes. (For those that don't know, the streamlined process allows you to get caught up by submitting a 2010, 2011, 2012 return + 6 FBARs)

I was hoping someone could provide some guidance on how best to leverage my student status in completing these returns. Here's some background:

attended University of Calgary (recognized by DoE)
4 yr program, but did it over 5 years
internship from Jan 2010-Aug 2010 (excluding this income with FEIE)
4 months of school from Sept 2010-end of year
4 months of school from Jan 2011 - april 2011
Started working full time in May 2011 (will be excluding this income with FEIE)
For 2012/2013 taxes, I am still under the FEIE limit, but I may not go with the FEIE and go with Foreign Tax Credit method instead (so that I can start to collect some credits to carry forward to when I have more higher income/more investment gains in the next few years)
School/tuition from 06, 07, 08, 09 but I would rather not file any more returns than I need to unless there is a benefit

I am at the point of filling in form 8863, and noticed there are two options, either the American Opportunity or the Lifetime Learning credits. My question is - am I eligible for any of these if i have never lived/worked in the US? Specifically, i would be interested in the American Opportunity credit since it is refundable.

Am I on the right track or should I go about my education stuff a different way? Any other options that might be better for me? Anything else i am missing?

Thanks in advance for any guidance you can provide! Btw, i have looked into hiring a professional but two different quotes were around $2500 to do this, so that is why I am resorting to trying on my own first


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## BBCWatcher (Dec 28, 2012)

Yes, if you qualify that American Opportunity Tax Credit is great. You might also want to consider not taking the FEIE for tax year 2010 so that you can qualify for the Making Work Pay Tax Credit, worth up to another $400. You must file by June 15, 2014, to qualify for tax year 2010 refundable tax credits (and then only if you're careful to include the statement described in Publication 54 concerning your overseas residence). That's because you have a maximum of 3 years from your original filing date to collect tax refunds, so the absolute deadline would be June 15, 2014 (with your statement) for tax year 2010.

You could consider using the Lifetime Learning Tax Credit (if you qualify) for one of your 5 years of tuition expenses. It'd make the most sense to use the LLTC for a year in which you don't take the FEIE. The LLTC is non-refundable, so you'd use it to reduce U.S. tax (hopefully to zero) otherwise owed. In other words, tax year 2010 when you grab the MWPTC might be a good year to use the LLTC since you can't take the FEIE if you want the MWPTC. Or you can try running 2010 with the AOTC plus MWPTC without the FEIE and see what you get.

You could also take a look at the Earned Income Tax Credit (EITC), potentially available if you don't take the FEIE, for those years when you worked but didn't make a lot of money.

Bear in mind that if you're claiming refundable tax credits your streamlined program participation is eligible for somewhat increased scrutiny. So caution on that, but in your position I think it's worth pursuing them since you're evidently not a "big fish."


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## sabad66 (Apr 14, 2014)

Excellent info and tips! I will look into all of those. Thanks much BBCwatcher.


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## BBCWatcher (Dec 28, 2012)

To simplify that a bit, I think what I'd do first is take a run through your tax years with only the Foreign Tax Credit plus whatever tax credits you're qualified to take (Making Work Pay Tax Credit, American Opportunity Tax Credit, Earned Income Tax Credit, and/or Lifetime Learning Tax Credit). See what you end up with doing your taxes that way. For the tax years before 2010 you won't be able to claim any refunds (money back from the IRS). However, if you have some _excess_ Foreign Tax Credits you can roll them forward into 2010+ which can then help you on your refunds in those tax years. That's allowed, as I understand it.

If that doesn't work -- if you start to see U.S. tax owed figures that are positive -- then you can take a look at whether taking the Foreign Earned Income Exclusion/Foreign Housing Exclusion makes sense. But since you've got so many tax credits, including refundable tax credits, that you might be eligible to claim, some of them based on having earned income (like the MWPTC and EITC), it's worth running through the FTC-only approach first to see what you get.

You can still include refundable tax credits (such as the MWPTC) in your pre-2010 tax calculations. That's fine. It's just that once you get to the end if it says "refund owed" you won't be able to get that money from the IRS. Tax year 2009 and prior refunds are over, as I write this. Tax year 2010 refunds are very nearly gone.

I assume you're a young adult given that you just attended university, so I assume you had zero (or very near zero) income before the first tax year that you'll be filing with the IRS. That's really what the IRS will be concerned about, that the tax years you're presenting in the Streamlined Program are unrepresentative when you're taking all these wonderful refundable tax credits, and they really ought not be sending you money because you didn't pay taxes for prior, unreported years. However, if I'm correct in my assumption, you aren't that older adult. You're just starting your tax reporting "career," as it were, and these would have been your first tax filings anyway. So in that case I tend to like the idea of your claiming the refundable tax credits you're owed. The IRS is going to do just fine anyway, because you probably missed some of that free money anyway by filing late.

Keep us posted, if you would. It sounds like you might be receiving a nice windfall.

On edit: One more thing that comes to mind is you should just check the Self Employment (SE) Tax to figure out whether you should or should not be paying that in any of those tax years. That's U.S. Social Security and Medicare payroll tax. Probably not, especially since you're in a treaty country, but it's worth mentioning. On the off chance you owe some SE Tax it's certainly not the end of the world because you'll probably end up vesting into U.S. Social Security and thus qualify for some level of future U.S. Social Security retirement benefits.


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## sabad66 (Apr 14, 2014)

So I ended up trying my returns both ways (FEIE and FTC) and came out way ahead with the FEIE method. Reason is that I didn't pay a lot of taxes in Canada in 2010/2011 due to carried-over education credits, so there really wasn't much to enter in form 1116 to offset my taxes owed.

With the FEIE method I am looking at around an $800 refund for both 2010 and 2011. I am going to be overnighting the package to the IRS tonight or tomorrow so hopefully i make the June 15 cutoff.

Will update everyone on results after they process it. Fingers crossed!


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## BBCWatcher (Dec 28, 2012)

How do you get a refund while using the FEIE for 2010 and 2011? Taking the FEIE should render you ineligible to receive refundable tax credits.

Is this a refund of U.S. income taxes that you actually previously paid for those tax years? That's the only way I can think of possibly qualifying for a refund while taking the FEIE.


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## sabad66 (Apr 14, 2014)

Hmm, perhaps I am missing a critical detail... I was not aware that taking the FEIE renders you ineligible for refundable credits like the AOTC. Would you know where that would be published? It definitely doesn't mention that on the form 8863 (Education Credits) instructions. I'll double check the 2555 instructions tonight but maybe it is mentioned somewhere else?


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## BBCWatcher (Dec 28, 2012)

I'm sorry, you are correct. The instructions specifically refer to the FEIE (for Modified AGI calculations in order to determine eligibility for the AOTC), so it's obviously allowed.

Well done.


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## maysmith (Sep 16, 2014)

So sabad66, how that work out for you?

I'm in a similar situation, haven't filed but on the cusp of doing so. I have education credits from the last two years so it may be a good time to do so. What I really would like to do is file in the streamline program so I can renounce. 

Did you hear back from the IRS? Please update me.


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## sabad66 (Apr 14, 2014)

Actually I am still waiting for my return. I submitted my streamline package on June 13 but somehow my 2010 return got separated from the other 2. So about a month ago I received 2 letters on consecutive days - 1 saying I was missing the 2011 and 2012, the other saying I was missing the 2010. I replied to them via fax indicating that I sent both and they somehow were separated.

So now just waiting to see what happens.

Either way I would suggest doing it. The worst that will happen is they tell you you're not eligible.

I will update when I hear back


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## maysmith (Sep 16, 2014)

Thanks, I'd appreciate that a lot.

I've pretty much decided to file now just deciding whether to include those education credits that gets me a refund. I don't know if I want any extra IRS attention but a $900 refund for two years will pay $1,800 of the $2,350 fee (plus $500 travel costs) to go renounce.

Please keep me updated.


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## sabad66 (Apr 14, 2014)

Good news! I received my refund cheque for my 2010 return on Thursday  Still waiting for my 2011, but i'm not too worried.. I assume it's on its way.

So overall I would say you're definitely eligible for the AOTC. 

My plan is to keep this $1700 and use it against any other future taxes/fees to accountants I may have to pay now that i'm "caught up" with my US taxes.


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## maysmith (Sep 16, 2014)

That's awesome! Well done! You are the first person I've heard of getting a refund. I'm very happy for you. The worse this tax squeeze goes for the U.S. the better. LOL.

I'm still on the fence about sending mine in with the AOTC because my T2202 was issued by Certified General Accountants of Manitoba (which will eventually give me a Bachelor of Business Admin as well as a professional designation as a CPA....if it doesn't kill me first). I guess if I send it in, they will just deny it if they want and it'll go to a zero return. I don't know if they will recognize it because the designation doesn't transfer. Oh well.

I'm happy for you! Thank you for updating me.


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## sabad66 (Apr 14, 2014)

One of the requirements is that the school needs to be recognized by the department of education. I went to u of Calgary, which was in the list. Definitely double check if your school is eligible


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