Working in the US for an Employer Abroad

I live and work in the US for a company abroad. Where is my pay taxed?

A US tax resident reports wages from a foreign employer on a US return. The US taxes residents on worldwide income, and the employer's country does not gain a right to tax US workdays merely because it pays the salary (IRS: US residents; Canada-US treaty, Article XV).

First confirm that you are a US tax resident for the period in question. A move can leave part of a year under different residence rules, and continuing Canadian ties can complicate Canadian residence. If you worked in more than one country, separate the pay by where you performed the work. The income tax treaty and the social security agreement answer different questions; neither replaces the other.

Is pay for US workdays foreign-source income because the payer is abroad?

No. Employee wages are generally sourced where the services are physically performed, so a day worked from a US home is a US workday even if the employer, payroll, and bank account are abroad (IRS: Publication 514, Table 2). A foreign employer's address and a Canadian T4 do not turn those wages into foreign-source income.

US workdays also do not qualify for the foreign earned income exclusion: that exclusion requires work in a foreign country, a foreign tax home, and a qualifying residence or presence test (IRS: foreign earned income exclusion).

For pay earned over both US and foreign workdays, the usual allocation for salary is based on work time during the period the pay covers. Certain benefits have different sourcing rules. Keep a dated workday calendar and the pay period for each salary, bonus, or benefit rather than allocating an entire year's pay from the year-end T4 alone (IRS: Publication 514, Determining the Source of Compensation). Pay tied to service before or after an international move may need a different service period; see stock awards and pay after a move.

Can foreign tax withheld on US workdays offset US income tax?

Usually not. The US foreign tax credit generally reduces US tax on foreign-source income, not US-source wages. Also, tax withheld abroad is not necessarily a creditable tax: the IRS looks at the legal and actual foreign tax liability after any refund (IRS: Publication 514).

If you are a US resident under the Canada-US treaty and perform all employment in the US, Article XV generally gives only the US the right to tax those wages. If Canada also treats you as resident, determine treaty residence under Article IV first. The treaty does not ordinarily turn US workday wages into Canadian-source income for a US credit; establish final Canadian tax before claiming one.

How do I report foreign-currency wages without a W-2 or with a T4?

If the foreign employer has no US employer identification number and issues no US Form W-2, report gross wages in US dollars on Form 1040 line 1h unless Form 8919 applies (IRS: Form 1040 instructions; IRS: Publication 4164). If US Social Security and Medicare tax was due but not withheld, check Form 8919: when it applies, those wages go on line 1g, and its reason code may require Form SS-8 filed by the return date. For a Canadian T4, start with box 14 employment income and reconcile it to payslips and US wage rules. Box 22 is Canadian income tax withheld, not US withholding; boxes 16/16A or 17/17A show CPP or QPP, and box 18 shows EI. A T4 is not a W-2. The IRS e-filing specification provides a foreign employer compensation record for this situation (IRS: Publication 4164). If the employer should have provided a W-2, ask for a correction; the absence of a form does not remove the wages from your return.

Convert pay as received using a supportable exchange rate for each payment. Convert any foreign tax separately at the rate applicable to that tax; do not subtract Canadian income tax, CPP, or EI from gross wages to find US wages (IRS: foreign currency; IRS: Publication 514). Keep payslips, the T4 or other annual statement, exchange-rate records, and proof of foreign tax paid and refunded. For other foreign income on the same return, see foreign income on a US return.

File the calendar-year US return by April 15, 2027 (26 USC 6072).

Do I need US estimated tax payments if no US income tax is withheld?

Possibly. If you expect to owe at least $1,000 after US withholding and refundable credits, check Form 1040-ES and make payments as needed. The usual payment test is the smaller of 90% of current-year tax or 100% of prior-year tax, provided the prior return covered a full year. The prior-year target rises to 110% if prior-year adjusted gross income exceeded $150,000, or $75,000 if married filing separately. No estimated payment is required if you had no prior-year US tax liability and were a US citizen or resident for that entire, full tax year (IRS: Form 1040-ES). Canadian tax withheld is not US withholding, so it does not by itself satisfy this test.

The Form 1040-ES schedule has four payment dates: April 15, June 15, September 15, and January 15, 2027. You can skip the last installment if you file the return and pay in full by February 1, 2027. A later lump sum may not remove an earlier underpayment; if your income began later in the year, the annualized income method on Form 2210 may reduce the penalty (IRS: Publication 505). Recheck US state estimated payments separately. Your employer's US payroll duties are covered in hiring an employee across the border.

Do US Social Security and Medicare apply to foreign-employer wages?

US work for a foreign employer is generally subject to US Social Security and Medicare withholding. The employee owes the tax on wages under section 3101; the foreign employer must withhold and pay it under section 3102, including the employee share it failed to withhold, and separately owes its employer share under section 3111 (26 USC 3101; 26 USC 3102; 26 USC 3111). A social security agreement can assign coverage to the foreign system instead, so the location of the employer and a foreign payroll deduction alone do not settle it (IRS: persons employed by a foreign employer).

Under the US-Canada social security agreement, Article V, work in one country generally falls under that country's system. An employee normally covered in Canada who is sent by a qualifying Canadian employer to work for the same employer in the US may remain under Canadian coverage if the expected assignment does not exceed 60 months. A coverage certificate establishes the basis for exemption from US Social Security contributions. The US-Canada agreement covers CPP; a separate US-Quebec understanding covers QPP, with its own certificate. Neither settles EI or income tax (SSA: Canadian and Quebec certificates).

My Canadian employer still deducts tax, CPP, and EI. What should I check?

Check each Canadian deduction under its own rule. A T4 showing all three deductions does not prove that all three are due after you move to the US (CRA: employment outside Canada).

Give payroll your residence status and dated workdays to review future Canadian income tax deductions. For Canadian workday pay exempt under a treaty, obtain a CRA waiver letter before payroll stops withholding. For Québec income tax deductions, request Revenu Québec authorization on Form TP-1016-V, usually 30 days before the services or first payment. Recover past excess income tax through the applicable return.

The CRA's CPP test says outside-Canada work is not pensionable if neither CPP condition in the table applies; QPP follows separate rules. If CPP or EI coverage is disputed, you or payroll can request a CRA ruling. Ask payroll to reimburse current-year overdeductions; if it cannot, the employee portion may be refunded on the Canadian return with corrected T4 earnings. CPP, QPP, and EI are separate from Canadian income tax withheld. CPP and QPP are not US foreign tax credits (IRS: Publication 514).

Can a Canadian nonresident return recover tax withheld on US workdays?

It may. If you are a Canadian nonresident, or a US resident under the treaty, and all covered employment was performed in the US, Article XV generally gives only the US the right to tax those wages. A federal Canadian income tax return can calculate the final Canadian liability and claim a refund of excess Part I income tax withheld; the CRA says to file when you want a refund (CRA: non-residents of Canada). For most nonresidents, the return is due April 30 of the following year (CRA: filing dates). File within 3 years after the tax year for an ordinary federal refund; the CRA may grant a late individual refund if you file within 10 years (CRA: taxpayer relief). If Québec tax was withheld, check RL-1 box E and the separate Québec return or refund (Revenu Québec: RL-1 guide; Revenu Québec: non-residents).

Do not assume a full refund from the T4 alone. Canadian workdays, a year of departure, continued Canadian residence, or pay earned while you were Canadian resident may leave Canadian tax due. The CRA also identifies narrow cases where a Canadian nonresident's pay for work outside Canada remains taxable in Canada (CRA: non-residents of Canada). Gather the T4, payslips, Canadian withholding proof, US residence evidence, workday calendar, and any prior Canadian departure return before filing.

How do workdays in Canada or another country change the split?

Foreign workdays generally produce foreign-source wages for US purposes, while US workdays remain US-source. Allocate ordinary salary by work time during the period it pays for, then check whether the work country can tax its portion and whether its final tax qualifies for a US foreign tax credit (IRS: Publication 514).

For Canada, Article XV allows Canada to tax pay for employment exercised there, subject to treaty exceptions. One exception applies when pay for Canadian work does not exceed $10,000 in Canadian dollars. The separate short-stay exception requires presence in Canada for no more than 183 days in any 12-month period starting or ending in the relevant tax year, pay not paid by or on behalf of a Canadian resident, and pay not borne by a Canadian permanent establishment. A Canadian employer can therefore change that result. Other countries have their own domestic law and treaties. Keep travel and work records; a flight, holiday, or day without work is not automatically a foreign workday for salary allocation.

Does my US state tax the wages if a treaty changes federal treatment?

Check the state where you are resident and any state where you physically work. State residence and wage rules are separate from the federal treaty calculation. For example, California says its residents are taxed on income regardless of source and that a federal treaty exemption generally does not remove income from California tax unless the treaty specifically applies to California (California FTB: Publication 1031). Other states must be checked under their own rules; do not carry a federal treaty result onto a state return without that check.

Example

Illustrative only. All wages and Canadian withholding below are Canadian dollars. Assume one exchange rate of C$1 = US$0.75 on every payday; actual returns need supportable rates for the relevant payments.

An employee who is a US tax resident and a US treaty resident receives C$100,000 of gross salary from a Canadian employer and a T4 showing C$12,000 of Canadian income tax withheld. The salary covers 200 workdays: 180 worked from a US home and 20 worked in Canada. There is no other Canadian employment pay, special benefit, or earlier service period.

On a simple time allocation, C$90,000 is US-source wages and C$10,000 is Canadian-source wages. The US return reports the full US$75,000 of wages, with US$67,500 sourced to US workdays and US$7,500 to Canadian workdays. The T4 withholding is not US withholding. Because Canadian-workday pay does not exceed the treaty limit, Article XV generally reserves tax on these wages to the US. The employee should check a Canadian return to recover Canadian income tax withheld, rather than assume a US foreign tax credit. CPP, EI, US Social Security, and state tax require separate checks.

Different for you?

• You live in Canada and work for a US employer: see working across the border.
• You live in Canada and work for an employer or client abroad: see remote work for employers and clients abroad.
• Your employer must set up cross-border payroll: see hiring an employee across the border.
• A bonus or stock award relates to work before or after a move: see stock awards and pay after a move.
• Both countries still withhold tax, you may be resident in both, or years were missed: gather both countries' returns, T4s, pay records, workday calendar, withholding proof, and coverage certificate for individual tax help.