Tax Implications for Canadians Working Temporarily in The U.S.
February 26, 2018 | Written by: Sohail Afzal
Are you a Canadian resident working in the US? There’s a Canadian-US tax treaty that was signed to help cater to situations where Canadians move to the US temporarily to work. It is very important to take time and understand how you are supposed to be taxed. Generally, you will not pay taxes on employment income if you are not a US citizen so long as you meet the requirements below:
- 1. You do not have an employment income of more than US $10,000
- 2. You will only be in the US for not more than 184 days in a 12-year period that starts and ends in the respective fiscal year
- 3. Your remuneration is not paid by or on behalf of someone who is a resident in the US
If you fail to meet the above minimum requirements then you will be required to pay US federal and state income taxes where applicable on your wages. The income that you acquire from the US will also need to be reported on your Canadian tax return.
Avoiding Double Taxation
Since you will be paying income taxes if you don’t meet certain requirements, and reporting this on your personal income tax return, there’s a risk of double taxation. However, you need to avoid this by making sure you claim a foreign tax credit when filing your Canadian returns. Even for those who meet the requirements mentioned above, it’s important to note that the individual US states are not all bound by the treaty so it’s still not a guarantee that wherever you go for work in the US, you will not be subject to the state’s income tax. The best approach is to speak to your tax accountant as soon as possible even before you travel to the US for work. Understand your US and Canadian filing requirements before moving forward.
Are you Self-employed
The taxation rules for self-employed individuals going to work in the US are different. Self-employment income earned in the US by a Canadian will not be subject to tax if you lack a fixed base or permanent establishment in the states. You need to file a treaty-based tax return which will exempt you from paying taxes in the US on your self-employment income. Again, the rules vary from state to state so even though you may be exempt from federal tax, you may still have to pay the state’s income tax. One thing that could lead to paying taxes in the US if you are self-employed is if you stay there for a very long time in any 12-month period, you are deemed to have a permanent establishment.
It’s important to understand the tax rules before traveling and get your documentation prepared if you will be required to file income or federal taxes in the US. Consult your tax accountant for advice on how to avoid paying double taxes and take advantage of available credits for your specific situation.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.