Living in Canada, Working for a US Employer: Where You Pay Tax

I work remotely from Canada for a US company. Which country taxes my pay?

If you are a Canadian tax resident and do all your employee work in Canada, Canada taxes the wages even when a US company pays them. If you are also a US nonresident, those wages are generally foreign-source for US federal tax, so the US employer's location or the currency of your pay does not by itself make them US-taxable (IRS; Canada–US treaty, Article XV).

Report the full employment income in Canadian dollars on your Canadian return. If it is not on a T4, the CRA directs you to line 10400; if it is on a T4, use line 10100. If your W-2 wages were reduced by contributions to a 401(k), 403(b) or 457(b) plan, add them back when reporting Canadian employment income (CRA). Commuters may separately qualify for a Canadian deduction, capped by unused RRSP room, for US employer-plan contributions tied to US-taxable work using Form RC268. A temporary transfer from the US to Canada may instead qualify on Form RC267 if, just before starting work in Canada, you were in the US plan and not a Canadian resident, you are not contributing to an RRSP or other Canadian registered plan, and you have not worked in Canada for that employer group for more than 60 of the previous 120 months. Keep a dated record of where each workday was performed. For a mixed schedule, ordinary wages are generally split by US workdays over total workdays, although some benefits follow other source rules (IRS, Publication 519).

My US employer withheld US income tax or Social Security. How do I get it back?

Ask payroll to correct withholding on Canadian workdays first. If US federal income tax was already withheld, a US nonresident generally files Form 1040-NR to claim the overpayment; Canadian foreign tax credit claims should be based on tax actually owed, not tax that can be refunded (IRS; CRA foreign tax credit folio). Check federal and state withholding separately on your W-2: a state refund requires its own return or correction process. New York may tax Canadian telework days when your primary office is there.

Social Security and Medicare are separate from income tax. They generally apply to US employee work, with limited exceptions for work outside the US and rules under the social security agreement. For amounts withheld in error, request a refund from the employer; if that fails, claim it from the IRS on Form 843 with the supporting records the IRS lists (IRS).

My employer has no office in Canada. Who deducts Canadian tax and CPP?

The US employer can still have Canadian payroll duties for a Canadian resident employee, even without a Canadian office. The CRA says an employer resident outside Canada has the same deduction, remittance and reporting responsibilities as a Canadian employer for its Canadian resident employee; the employer should arrange Canadian payroll and a T4 where required (CRA payroll guide).

CPP coverage needs its own check. A foreign employer without an establishment in Canada can apply on Form CPT13 to cover all its employees who usually live and work in Canada outside Quebec; its authorized signer signs the application, and the employer cannot cancel it after CRA approval. Canadian income tax withholding does not itself mean CPP is being deducted. Ask payroll which system covers you and whether any certificate of coverage applies. If Canadian tax is not being deducted, keep funds for the tax return; instalments may be required when net tax owing exceeds C$3,000, or C$1,800 for Quebec residents, under the CRA's year tests; they are due March 15, June 15, September 15 and December 15 (CRA instalments).

Ask payroll to check Employment Insurance (EI) separately. Most employee work in Canada is insurable, but CRA lists exceptions, including work subject to US state unemployment premiums.

I commute to a job in the US. Where do I pay tax, and what do I file?

Report all wages on your Canadian return. If you are a US nonresident who works in the US, you generally must also file Form 1040-NR, even when the treaty exempts those wages from US federal tax; report treaty-exempt wages in Schedule OI, item L, and on Form 1040-NR, line 1k, and claim any federal overwithholding there (IRS Schedule OI; Form 1040-NR). It is due April 15 after the tax year if you had wages subject to US income tax withholding, otherwise June 15 (IRS Form 1040-NR instructions). Canada may credit eligible US tax on US-work wages (treaty, Articles XV and XXIV).

For US work, Article XV keeps the wages taxable only in Canada if the US-work remuneration does not exceed $10,000 in US dollars for the calendar year. Above that amount, relief may still apply if you spend no more than 183 days in the US in the treaty's twelve-month period and the pay is neither paid by or for a US resident nor borne by a US permanent establishment. A job paid by a US employer commonly fails that second route even for a short visit (Article XV; Treasury explanation). If treaty relief applies to US work, sign and give payroll a new Form 8233 each tax year. Payroll signs it and forwards it to the IRS within 5 days of acceptance; Form 1040-NR can claim overwithholding afterward (IRS Form 8233; instructions).

Do my commuting days count toward US tax residency?

Same-day US work commutes can be left out of the US substantial presence test only when they exceed 75% of workdays in the working period. That period normally runs from your first to last US workday in the year; seasonal or cyclical work can have separate periods. A commute means returning to your Canadian residence within 24 hours. Count overnight stays and other US visits separately (IRS, Publication 519).

The exception changes the residency day count, not the source of the pay for work done in the US. If your counted days meet the substantial presence test, check your US tax residency before filing Form 1040-NR. The closer-connection exception needs fewer than 183 US days and a tax home, your main place of work, in Canada, so it usually fails if your main workplace is in the US; claim it on Form 8840 by the Form 1040-NR due date. Otherwise the treaty's residence rule may apply, claimed on Form 8833 with Form 1040-NR (IRS, Publication 519; IRS treaty guidance). Keep a calendar of work location, border crossings and overnight stays. If Canadian residence is also uncertain, see Canadian tax residency. Visitor days outside a work commute are covered in Snowbirds and US residency.

Which pension system covers me: CPP or US Social Security?

The Canada–US social security agreement generally assigns an employee's work to the system where the work is performed. A worker already covered in one country whom an employer with a place of business there sends to work for it in the other can generally stay in the sending system if the assignment is expected to last no more than 60 months. Longer assignments or an employer without that place of business require prior agreement between the authorities. A coverage certificate documents the exemption from the other system (SSA agreement, Article V).

For remote Canadian work, ask whether Canadian coverage applies and whether the foreign employer elected CPP coverage through CPT13. If Canadian coverage does not take effect, the agreement can instead make US law apply. For US work or an assignment, ask payroll for the applicable certificate before treating Social Security or CPP deductions as errors. Quebec work can involve QPP instead of CPP; the coverage decision should be checked under the Quebec rules as well (CRA CPP guidance; SSA agreement, Article V).

Do I file a US state return, and does the state follow the treaty?

A US state return may be due even when treaty relief removes federal income tax. The IRS says some states follow federal treaty benefits and others do not, so check the state where you worked and any state income tax on your W-2 (IRS).

New York, for example, may require a nonresident return for New York-source pay. Its rules can also treat days telecommuting outside New York as New York workdays when the employee's primary office is in New York, unless the employer established a bona fide office at the remote location (New York State). Canada normally sources pay for those days to Canada, so a Canadian foreign tax credit may not relieve the New York tax. Check the state allocation and available remedies before treating that tax as creditable (CRA foreign tax credit folio).

My Canadian employer sends me to the US briefly. Do I owe US tax?

The answer depends on the US-work pay, days present and who pays or bears the wages. Article XV can keep US-work wages taxable only in Canada if the wages meet the $10,000 US-dollar calendar-year limit, or if the 183-day test and both employer-cost conditions are met (treaty, Article XV).

A US affiliate paying the wages, or a US permanent establishment bearing them, can change the result even when the trip is short. Also confirm whether CPP remains the applicable pension system during a temporary transfer and obtain a coverage certificate where needed (Treasury explanation; SSA agreement).

How do I claim credit in Canada for US tax on my wages?

Canada may allow a foreign tax credit for US tax actually payable on US-work wages included in your Canadian return; refundable US withholding is not final tax. Correctly due US Social Security and Medicare contributions may also qualify, subject to Canadian limits (CRA foreign tax credit folio; CRA line 10400). Keep your W-2, US return and tax transcript, proof of payment, final state return and workday log (CRA line 40500). See Foreign income on a Canadian return for federal, provincial and Quebec credit calculations.

How are stock options or RSUs taxed if I worked in both countries?

Canada taxes a resident's employment benefit from stock awards. The US may also tax the part earned through US work. An RSU promises shares or cash when its conditions are met, or "vest." For a covered employee option, the treaty allocates income by the principal place of employment between grant and exercise or disposal; apply Article XV's US-work exemption tests to the years when the related services were performed, not the exercise year. The IRS sources an RSU example over the service period before vesting (Treasury explanation; IRS).

Do not assume an RSU follows the treaty's specific option rule. The Canadian tax event and payroll reporting depend on the award's terms; CRA distinguishes restricted stock units from standard options and says a nonresident company can have Canadian withholding and reporting duties for option benefits (CRA). Keep the grant agreement, vesting and exercise dates, award statements, work locations over the earning period and both countries' slips for a coordinated review.

Example

Illustrative only; all amounts are Canadian dollars and no tax rate is assumed. A Canadian resident earns C$100,000 from a US resident employer over 200 workdays: 150 in Canada and 50 in the US. Assume all workdays fall between the first and last US trip, every US trip is a same-day commute, the worker remains a US nonresident, and the US-work share exceeds the treaty's $10,000 US-dollar limit after conversion. On a simple workday allocation, C$25,000 of wages relates to US work. Canada includes C$100,000; the US can tax the US-work share because the US employer also blocks the separate 183-day treaty route. The worker generally files Form 1040-NR and tests final US tax for a Canadian credit. The 50 commutes are 25% of workdays in the working period, so they do not qualify for the regular-commuter day exclusion.

Different for you?

• You are a US citizen or green card holder in Canada: US worldwide-income filing changes the result. See Americans living in Canada.
• You bill clients as a contractor: employee payroll and treaty rules may not fit. See Canadian freelancers with US clients.
• You moved to the US rather than commuting: residence and departure tax come first. See Moving from Canada to the US.
• You received Form 1042-S for non-wage income: use US tax withheld on payments to Canadians.
• Your pay includes options or RSUs, multiple employers, missing payroll deductions or disputed state tax: bring the award documents, contracts, slips, workday log and both countries' returns to a cross-border tax review.