Canadian nurses and locum doctors: short US contract taxes

Which tax returns do I file for a short US contract if I live in Canada?

A nonresident alien engaged in a US trade or business files Form 1040-NR, the US return for people who are not US residents for tax, even when a treaty exempts the income. Personal services performed in the US generally count as a US trade or business, and a short assignment does not by itself change that (Publication 519; Form 1040-NR instructions, Table A).

One narrow rule treats small pay from a foreign employer as not US-source: US$3,000 or less for no more than 90 days in the US in the tax year, paid by a nonresident alien, a foreign partnership or corporation not engaged in a US trade or business, or a US person's office abroad. A US hospital or staffing agency is generally not a foreign employer, and the old exception for wages below the personal exemption amount is gone (Publication 519, Services Performed for Foreign Employer and Exceptions).

Pay for shifts physically worked in a US hospital is generally US-source income, whatever your address or bank. If some work occurs in Canada, wages are generally allocated by service days (IRS: personal service income).

For a nurse living in Windsor and working in Detroit, these are the returns to check:

Form 1040-NR allows itemized deductions only; the standard deduction is limited to certain students and business apprentices from India (instructions, line 12). Line 13c adds the temporary overtime deduction, up to US$12,500, for an employee with a valid SSN and FLSA overtime pay; the Schedule 1-A instructions give the other conditions (IRS summary).

Deductions and credits other than the credit for tax withheld depend on filing within 16 months of the due date, sooner if you skipped the prior year's return and the IRS notifies you, so a contractor who files late can lose travel and lodging deductions. Form 4868 extends the filing date, not the payment date (Publication 519).

W-2 or 1099: what changes in withholding, the treaty claim and filing?

Employee wages and self-employed clinical fees follow different withholding and treaty rules. A form labelled 1099 does not establish that the worker was correctly classified or remove the payer's withholding duties on pay to a nonresident.

Form 8233 is what you give the payer before payment to claim a treaty exemption from withholding; the payer signs to accept it and sends it to the IRS within 5 days (Publication 515). A Canadian contractor often cannot use it: the Article V(9) services test turns on days not yet known at payment, so the payer may have to withhold the default rate and you recover the excess on Form 1040-NR (Form 8233 instructions). A withholding agreement with the IRS, or a final-payment exemption of up to US$5,000 by IRS letter, can also reduce it (Publication 515).

A nonresident contractor may receive Form 1042-S, which shows pay and tax withheld for a foreign person, rather than Form 1099-NEC. Income can be taxable even if no form arrives, and a payer that withholds nothing does not decide whether you must file. Treaty-exempt pay goes on line 1k with item L of Schedule OI, not on line 1a. If the payer withheld because no Form 8233 was filed, reduce line 1a by the exempt amount and attach a statement with the facts a Form 8233 would have held (Form 1040-NR instructions).

For employees, Article XV leaves US-work pay taxable only in Canada if it is no more than $10,000. Above that, a stay of no more than 183 days in any 12-month period beginning or ending in the fiscal year still needs the pay not to be paid by or for a US resident or borne by a US permanent establishment. A US hospital or agency generally is a US resident, so a short contract alone does not settle it. Detail and the employer-sent case: Working across the border.

For contractors, Article VII leaves business profits taxable only in Canada unless attributable to a US permanent establishment. That includes a fixed place of business and, under Article V(9), a services test: you are deemed to have a US permanent establishment if either

• you are in the US 183 days or more in any twelve-month period and more than 50% of your practice's gross active business revenues come from your US services; or
• you provide services in the US 183 days or more in any twelve-month period on the same or a connected project, for customers who are US residents or have a US permanent establishment, in respect of that establishment.

Count days across all contracts in the twelve months, not one rotation at a time. Article XIV is repealed (Canada–US convention, Articles V, VII and XIV).

A contractor who takes the position that Article VII exempts the income generally also attaches Form 8833; it is excused for treaty claims on dependent personal services, which covers employee pay under Article XV. Failing to disclose a required position carries a penalty of US$1,000 per failure (Form 1040-NR instructions). Contractor forms are in Canadian freelancers with US clients.

Is my per diem or housing stipend taxable on a 13-week US travel contract?

A housing stipend on a travel-nurse or locum contract is not automatically tax-free because the agency calls it a reimbursement or the contract lasts 13 weeks. Test the US exclusion and the Canadian treatment separately.

If you are self-employed there is no payroll stipend to exclude: what the client pays is revenue, and travel and lodging are business expenses only where the tests below are met, reported on Form T2125 in Canada. Publication 515 exempts a payer's accountable-plan travel and lodging payments to a nonresident from reporting and withholding, but not the part that is compensation (Publication 515).

What does the US tax-home test require?

US travel rules generally put a tax home at the main workplace, not the family home. Without a main workplace, work near the claimed home, duplicate living costs and continuing ties decide whether one exists; without a tax home you cannot be away from it for deductible travel (Publication 463, Tax Home).

An assignment expected to last, and lasting, 1 year or less is generally temporary, but renewals and a series of short assignments at the same location can change that (Publication 463, Temporary Assignment or Job).

For an employee, an accountable plan is the agency's arrangement that pays only for substantiated business costs and has you return any excess, subject to the applicable per diem rules. Payments under one are excluded from wages; other payments are wages, and renaming ordinary pay as expenses does not establish an exclusion (26 CFR 1.62-2(c)–(f)). A stipend treated as wages is not offset by deducting your actual housing and travel cost: Publication 463 says employees outside a short list of categories may not claim unreimbursed employee travel expenses (Publication 463).

Does Canada accept the agency's US treatment?

Canadian treatment follows Canadian benefit and allowance rules, not the agency's US payroll treatment. A stipend omitted from US taxable wages still needs a Canadian inclusion or exclusion analysis.

The CRA's employer guide says free lodging is a taxable benefit and describes special-work-site relief for board and lodging. Its conditions include temporary duties, a separate principal residence kept available and not rented out, a distance that makes daily return unreasonable, and board and lodging provided for at least 36 hours (CRA: board, lodging and travel allowances).

Neither Publication 463, written for US taxpayers, nor the CRA employer guide addresses whether a Canadian resident on US agency contracts has a Canadian tax home, or how a US staffing agency's housing stipend is treated in Canada. Do not assume US payroll treatment establishes Canadian relief.

Which state taxes apply, and does the state follow the treaty?

US state tax is separate from federal treaty relief: the IRS says some states honor US tax treaties and some do not (IRS: tax treaties). Check every work state and applicable city.

These examples are not a national rule, and the New York page does not address treaty treatment.

Do I pay US Social Security and Medicare, CPP, or both?

The social security agreement is built so that the same work is covered by one country's plan, not both (CRA agreement explanation; SSA pamphlet). An employee of a US hospital or agency is generally covered by US Social Security and Medicare, even when living in Canada. A self-employed resident of Canada is covered by the Canada Pension Plan instead; Quebec residents deal with Retraite Québec, which lists the United States among its agreement countries (Retraite Québec).

An income-tax treaty exemption does not itself establish exemption from payroll contributions. A worker sent by a Canadian employer, and a refund of contributions withheld in error, are in Working across the border.

The CRA's agreement explanation says Canada will not normally issue a Canada Pension Plan certificate of coverage for work done in the US during visits of 6 months or less, while its current certificate page says a self-employed resident of Canada who will be temporarily working outside Canada can ask for one (CRA: who can apply). Ask the CRA before relying on either. For a self-employed worker with a temporary contract abroad, Retraite Québec says the certificate comes within a maximum of 40 days after a complete application (Retraite Québec).

Nonresident aliens generally are outside US self-employment tax, but social security agreements can change that result, so classification and residence matter before deciding whether Schedule SE applies (IRS: Social Security, Medicare and self-employment).

How do I report US pay and claim credit in Canada?

A Canadian tax resident reports US employment or professional income in Canadian dollars. Eligible US federal and state income taxes may support Canadian foreign tax credits, subject to the Canadian limits.

Report US employment income not on a T4 at line 10400 (CRA: foreign employment income) and self-employed clinical income on Form T2125, both in Canadian dollars. The federal foreign tax credit uses Form T2209 and line 40500; the provincial credit uses Form T2036 outside Quebec. Quebec residents do not complete T2036; the CRA refers them to Revenu Québec for Quebec's credit.

The CRA credit instructions generally limit the federal credit to the lesser of eligible foreign tax paid and Canadian tax otherwise payable on the net foreign income. For self-employed income, unused credit for US business-income tax can be carried back 3 tax years or forward 10 tax years (Income Tax Act, s. 126(2)); that carryover covers business-income tax only.

The credit calculation runs in this order:

1. Wages or professional revenue, benefits and stipends, reconciled under Canadian rules. The CRA says to add back 401(k), 403(b) or 457(b) contributions that reduced the W-2 amount, and not to reduce foreign income by tax withheld; add a stipend taxable in Canada.
2. Final US federal, state and local tax, including valid treaty claims and refunds.
3. Amounts translated under the CRA exchange-rate rules, with the rates kept.
4. The Canadian credits, updated if the US tax changes.

The CRA's folio says tax that is or will be refunded, tax paid voluntarily contrary to the treaty, and withholding above the treaty rate are not foreign tax paid, and that the taxpayer should seek a refund of the excess from the foreign tax authority (CRA foreign tax credit folio, paragraphs 1.33–1.35).

US Social Security and Medicare contributions may also be creditable foreign taxes; keep them separate from income-tax withholding. For the wider reporting rules, see Foreign income on a Canadian return.

Do I need an SSN or an ITIN to be paid and file?

A nonresident alien with a US work visa qualifies for an SSN, and the IRS issues an ITIN only to someone who is not eligible for one. An ITIN is for federal tax purposes only and does not authorize work (IRS: ITIN). The IRS will not generally issue an ITIN to a work-authorized person only waiting on the Social Security Administration, and a payer generally may not grant a treaty benefit on Form 8233 or W-8BEN until the form carries the payee's taxpayer identification number (IRS: delayed SSNs).

A contractor who is not eligible for an SSN and has a federal tax purpose, such as a treaty claim or a return, may need an ITIN; the application steps are in Nonresident return for business income.

Do repeated rotations make me a US tax resident?

Repeated US rotations can change federal tax residency even when every contract is short, because the test counts days across three years, not per contract. The test generally makes you a US resident for tax if you were in the US at least 31 days this year and this year's days, plus one-third of last year's and one-sixth of the year before's, reach 183 days. A 13-week contract is at most 91 days (only days physically in the US count), so two back to back reach at most 182 before earlier years are added (IRS: substantial presence test).

Days you commute from your Canadian residence to work in the US are not counted if you commute on more than 75% of your workdays in the working period. Commuting means returning to your residence within 24 hours, so a stay in US housing between shifts is not a commuting day (Publication 519, Regular commuters). If the test is met, you may still be a nonresident. A closer-connection claim needs fewer than 183 days in the US that year, a tax home in Canada and no application for permanent residence, and Form 8840 filed by the Form 1040-NR due date. The treaty's residence tie-breaker (Article IV) goes on Form 1040-NR with Form 8833 attached (Publication 519). See Snowbirds and US residency and Canadians on a TN visa.

Leaving the US after a contract is its own step. Publication 519 says an alien must generally obtain a certificate of compliance (Form 2063 or Form 1040-C, from an IRS Taxpayer Assistance Center) at least 2 weeks before leaving, unless an exception applies; regular commuters whose wages are subject to US withholding are excepted (Publication 519, chapter 11).

I am a US citizen living in Canada: what changes?

A US citizen or green card holder living in Canada generally follows US worldwide-income filing rules rather than the nonresident-only treatment above, while Canadian residence also brings Canadian reporting. Treaty credit coordination and payroll coverage still need review (IRS: citizens and resident aliens abroad). Start with Americans living in Canada; for self-employed work, see US self-employment tax or CPP for Americans in Canada.

What should I keep for each contract?

Keep enough evidence to connect each payment to the contract, work location and expense it covers. A W-2 alone does not establish a stipend exclusion, treaty entitlement or final Canadian credit.

• Contract and extensions: payer's legal name, employee or contractor terms, hospital location, expected end date and subsequent renewals.
• Compensation breakdown: wages or fees, per diem, housing, bonuses, reimbursements, deductions and the agency's reimbursement policy.
• Travel and housing evidence: border dates, workdays by state and city, overnight locations, housing invoices and expenses of the Canadian home.
• Coverage and treaty documents: any coverage certificate, Form 8233, and evidence supporting the exemption claimed.
• Tax reconciliation: W-2, 1042-S or other payer forms, filed returns, assessments, payments, refunds and currency conversions.

Example

Illustrative only. A Canadian resident nurse receives US$30,000 of wages and US$5,000 of housing stipends for a short US contract. Assume a review supports excluding the stipend in the US but finds it taxable in Canada. Assume an exchange rate of C$1.40 per US$1 for all amounts in this example.

Canadian employment income is C$49,000: C$42,000 of wages plus C$7,000 of taxable stipends. Simply converting the US$30,000 W-2 wage figure would omit the stipend taxable in Canada.

Assume final eligible US federal and state income tax is US$5,000, but US$6,000 was withheld and US$1,000 is refunded. The income-tax amount entering the Canadian credit calculation is C$7,000, not C$8,400. The Canadian credit may be smaller if the applicable Canadian limit is lower. Payroll contributions require their own review and are omitted from this illustration.

Different for you?

• A Canadian employer sends you to the US: the employer and treaty conditions matter; see Working across the border.
• You also do work from Canada for US clients, such as remote reading or telehealth: see Canadian freelancers with US clients for the contractor forms and treaty analysis.
• You are a US citizen or green card holder: see Americans living in Canada.
• You stay in the US between rotations, apply for permanent residence or move there: review Snowbirds and US residency before assuming Form 1040-NR remains appropriate.
• Your contract is billed through your professional corporation: this page covers contracts in your own name. See Professional corporations, then a cross-border tax review for the US side.
• You have disputed stipends, several work states or missed returns: get a cross-border tax review. Bring the contracts, pay breakdown, workday records and both countries' tax documents.