Canadian residents working in the United States

If you’re a resident of Canada but work in the United States, the Canada-US Tax Treaty provides special rules to determine how you are taxed. Provided you’re not a US citizen, you’ll be exempt from US taxation on employment income earned in the United States if either of the following conditions is met:

  • Your US employment income does not exceed US $10,000.
  • You are present in the United States for less than 184 days in any 12-month period beginning or ending in the fiscal year concerned, and your remuneration is not paid by, or on behalf of, a person who is resident in the United States and is not borne by a permanent establishment in the United States

If you do not meet either of the above tests, you must pay US federal and, if applicable, state income tax in the United States on your US-source wages (income is sourced to the jurisdiction where the services are performed, not where you’re paid from). You will also have to report this income on your Canadian tax return. To avoid double taxation, you will generally be allowed to claim a foreign tax credit on your Canadian return for any tax you pay to the United States. You should note that the individual US states are not bound by the treaty. Therefore, even though you may be subject to an exemption from US federal tax under the treaty, there is no guarantee that you will not be subject to a state’s income tax. If you do any significant amount of work in the United States, it’s best to consult with your tax adviser to determine your Canadian and US filing requirements.

If you’re self-employed, the rules are different. US-source self-employment income is not subject to US tax if you do not have a fixed base or permanent establishment in the United States. In such cases, you’ll be required to file a treaty-based return if you are relying on the treaty to exempt you from US tax. Again, you may be subject to a state’s income tax even if you are exempt from US federal tax under the treaty. However, you should keep track of the number of days you are present in the US as you may be deemed to have a permanent establishment in the US if you or your employees spend significant time in the US in any twelve month period.