Are you a U.S. citizen working in Canada? Or a dual resident not sure which tax rules to follow? What if you’re a U.S. citizen who crosses the border every day to work for a Canadian company?

Filing your taxes is hard. The U.S. tax system is one of the most complex tax codes in the world. So figuring out your taxes in both Canada and the States can feel even more intimidating. 

We’re here to help you make sense of how your taxes work as an American living or working in Canada. 

Key Takeaways
  1. Regardless of your citizenship, you have to pay Canadian income tax if you live and work in Canada.
  2. The U.S. bases taxation on both your residence and citizenship status. In Canada, your tax obligations are based on your residency status, which the CRA determines for you.
  3. Canada and the U.S. have a tax treaty to prevent double taxation for Canadian residents earning U.S. income and U.S. citizens working and living in Canada.

What’s the difference between U.S. and Canadian tax rules?

The U.S. bases taxation on both your residence and citizenship status. This means American citizens must file a U.S. tax return every year, regardless of where they live or work. 

In Canada, your tax obligations are based on your residency status, which the Canada Revenue Agency (CRA) determines for you. The general rule is that regardless of your citizenship, you’ll have to pay Canadian income tax if you live and work in Canada.

Does Canada have a tax treaty with the U.S.?

Canada and the U.S. have a tax treaty to prevent double taxation for Canadian residents earning U.S. income and U.S. citizens working and living in Canada. While both U.S. citizens and Canadian residents have to report their foreign income regardless of where they file their tax returns, the treaty saves U.S. folks from being taxed by the U.S. on income earned and taxed in Canada.

But there’s a catch. To be eligible for the exemption, you have to complete the U.S. 1040 federal tax return accurately and on time. Otherwise, you could face double taxation, denial of legitimate expenses, interest charges, or penalties on incomplete or inaccurate forms.

Do you have to pay taxes in both the U.S. and Canada?

If you live and work in Canada as a U.S. citizen 

As a U.S. citizen living and working in Canada, you’re taxed by Canada on money earned in Canada. This includes income you earn from being an employee at a company operating in Canada as well as any interest you earn from investing in Canadian stocks, bonds, or mutual funds. 

As a Canadian resident, you get taxed on your worldwide income, regardless of where it came from. This means you’ll have to declare all foreign and domestic income on your personal tax return.

If you live and work in Canada for only part of the year as a U.S. citizen

If you’re only in Canada part-time, how you get taxed by the CRA comes down to your residency status, which is based on a case-by-case basis.

Generally, the CRA reviews your residential ties to Canada, how long you have been in the country, where you normally live, and several other factors to determine your residency status. For example, you’re considered a deemed resident if you stayed in Canada for 183 days or more during the tax year. 

If you’re not sure of your residency status in Canada, contact the CRA at 1-800-959-828. 

If you live in the U.S. and cross the border for work every day

Daily commuters crossing the border to work are common, so it’s possible for a U.S. citizen to be a U.S. resident while earning income in Canada.

As a non-resident in Canada, you’re required to pay Canadian tax only on Canadian sources of income. But under the income tax treaty between Canada and the U.S, you may be exempt from Canadian taxation and may apply for exemption on withholding of tax from Canadian sources.

If you’re a dual resident

You’re considered a dual resident if you have a home in more than one country and are considered a resident of two countries. 

As a dual U.S. and Canadian resident, you’ll likely file both Canadian and U.S. tax returns, which could lead to double taxation. Luckily, the tax treaty provides provisions and relief in these situations, so you’ll likely pay taxes in one country and receive credit from the other for the taxes paid.

If you work in Canada, but for a U.S. company that pays you in USD, as long as you don’t live in Canada, you won’t have to have to pay Canadian taxes for that employment income. 

If you work for a Canadian company that pays you, you have to pay Canadian tax on this income, even though you live outside Canada.

As an American living and working in Canada, you’re probably getting used to the many changes and curveballs that come with building a life in a new country. If your tax situation is one of them, TurboTax can help. 

At TurboTax, we take care of your taxes. Our software helps you find deductions and credits you’re eligible for, saving you money at tax time. 

If you’d like more guidance, check out TurboTax Live Full Service. You can get unlimited access to live tax experts who can answer all your questions, review your tax return, or even prepare your return completely, from start to finish.

*TurboTax Live™ Full Service is not available in Québec

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