Taxation for Canadians Going to USA for Work

Taxation for Canadians Going to USA for Work

Individuals living in Canada that have anything to do with the United States may have to address taxation in either or both countries. Their involvement may be small, such as winning some gambling money in Vegas, or they could own assets in the US, or marry someone from there. You might be paying US tax when least expected; who says tax is based on common sense? The subject of Canada-US cross-border taxation is vast, and there are many issues associated with it.

In this article I will focus on just one issue, which relates to Canadian residents who are employed in Canada and only travel to the US occasionally for work assignments. If this applies to you then the following simplified example would serve to demonstrate some of the issues you might come across.

If you mainly work in Canada; are a Canadian resident; are not a US person; and are occasionally sent to the US to work, then you may be required to file a US tax return and pay tax to the IRS. The two countries have a Tax Treaty, which is an agreement for cross border taxation, which normally overrides Federal tax legislation. According to the treaty, Canadian residents who work in the US and earn over $10,000 US Dollars (i.e., the threshold) while being physically present in the US, are required to file a US tax return and to pay US tax. Note that the $10,000 exemption does not apply to US citizens or US persons living in Canada. Such individuals are instead required to file a US tax return to report their world-wide income, no matter where in the world they reside. Also note that the number of days during which you are physically present in the US may have residency implications for US tax purposes.

Continuing with the above example, even if you earn less than the threshold amount while in the US, you may still, in the interest of full disclosure, want to file a US tax return to report your US source employment income to the IRS. In that case you may face double taxation, which means paying tax on the same income twice, once in each country. Regardless, if you still choose to file a US return, then you would be reporting the US-source income on that return and paying US tax on that income. To prevent or at least minimize double-taxation, the US tax paid by Canadian residents on US-source income is generally eligible for a tax credit against Canadian tax on that same income.

To claim a tax credit on your Canadian return for US tax paid, you would need a US slip (normally a W-2, which is the T4-equivalent down south), a copy of your US tax return, and a US tax account statement (also known as a transcript) from the IRS. In addition, the income earned while in the US would have to be excluded from your Canadian T4 slip. For this purpose, your employer should be issuing two tax slips to you, one for each country. However, it is possible that your employer has issued only one slip to you with all your employment income, either because they aren’t aware of the requirement to issue two slips, or to avoid US reporting.

Often employers (and employees alike) are unaware of cross-border requirements, resulting in problems at tax time. Filing without the proper slips could cause issues with assessment of the return(s). Further, the issue could surface years later, resulting in a difficult to reconcile situation. Sorting out such an issue could then require a significant amount of yours and your accountant’s time.

It is therefore important to be aware of such issues before the fact, and to address them in a timely fashion. Specifically, if you are occasionally working in the US, then be sure to discuss the issue of taxation with your employer to ensure you and your employer are aware of the requirements, so you can make the applicable filings, and claim the appropriate deductions and credits correctly.

Of course, you should be aware that the situation may not necessarily be as simple as described above. There could be other relevant factors to consider. There may be State taxes, which may apply despite the tax treaties. There could also be facts and circumstances that give rise to you being considered a “US person,” which means you have to file a US tax return like a US citizen, reporting all of your income. A very relevant factor would be if you are related or associated with your employer. These and other factors can change the above scenario dramatically. We recommend consulting a specialist to evaluate and analyze the facts, and to provide the right advice.

Should you wish to discuss your situation, please Contact Us and we can connect you with a US tax specialist or a tax lawyer from our network of professionals.

Attaul Hamid



The contents of this article are written and published to provide general information and are not intended to substitute advice. As individual circumstances, which may be applicable in a specific situation, have not been addressed in this article, readers seeking specific advice may find the information misleading. Such readers are encouraged to consult a professional to obtain complete and relevant advice related to their situation. We have made every effort to prepare the information with care. However, we do not accept responsibility for its use and any outcome arising out of its use. Where opinions are expressed, such opinions do not reflect the facts of the subject matter and should not be considered as advice or recommendation(s).