U.S. Tax Guide for Americans Living in Canada
7 min read
October 26, 2022
October 26, 2022
At a glance
Get tax advice for U.S. Citizens or green card holders living in or moving to Canada. H&R Block explains everything you need to know to file U.S. expat taxes in Canada
With H&R Block, you can feel confident knowing you’ve found the right expertise for your U.S. expat taxes in Canada. We’ve outlined a few considerations U.S. citizens working in Canada should know about U.S. and Canada taxes below, including what affects the tax you pay and which forms you may need to file. Of course, expat tax rules are complex and go far beyond what we’ve listed below, which is why we made it simple to get your expat taxes done right. Get started on your U.S./Canada taxes now!
What Americans living in Canada should know about U.S. taxes
For starters, Americans and U.S. green card holders living in Canada should continue to file a U.S. tax return each year. As a U.S. citizen, you have a tax obligation to the U.S. regardless where you hang your hat. That means you’re taxed on all your income, including income from your wages, dividends and interest, and rental properties.
Working as a U.S. citizen in Canada can affect your taxes even if you don’t stay long. For example, if you earn income while on a short-term assignment, you’ll need to report that income on your U.S. taxes. As you establish deeper financial roots in Canada, you’ll have more considerations for your American tax filing.
You may need to report your Canadian financial accounts and assets. Generally, U.S. taxpayers with more than $10,000 in foreign bank or financial accounts are subject to FBAR filing and reporting requirements. You may also be subject to FATCA reporting requirements if you have foreign assets valued at $200,000 and higher.
U.S. tax penalties are steep, and can result in fines, a revoked passport, or even jail time. If you’re tempted to skip filing your U.S. taxes or additional financial reporting, you’ll pay the price later. Canada is one country that complies with FATCA reporting—meaning Canada and the U.S. can exchange information about an individual’s financial accounts. Considering the hefty fines and penalties that come from not reporting your assets (upwards of $10,000 in fines per year), it’s worth it to have a U.S./Canada tax expert go through your documents to make sure you’re reporting the correct amount.
You can lower your U.S. bill and avoid dual taxation with certain tax strategies. If you were worried about double taxation between the U.S. and Canada, you can relax. U.S. citizens working in Canada may take advantage of one of two options, detailed below, to lower their taxes:
- The Foreign Earned Income Exclusion and Housing Exclusion – The FEIE and housing exclusion allow Americans living in Canada to exclude up to a certain amount of foreign earned income if they meet certain requirements.
- Foreign Tax Credit – The Foreign Tax Credit allows Americans to claim a dollar-for-dollar credit on Canadian taxes paid if they meet certain requirements.
I’m a U.S. citizen retiring in Canada. What do I need to know about U.S. taxes?
If retiring up north is your long-term goal, you should first understand how taxes work when retiring abroad. To start, you still may have to file a U.S. tax return even if you retire in Canada. You’ll also still have to report money in any foreign financial accounts on your FBAR if you meet the requirements
Canadian tax-free investments are not tax-free in the United States. If you own a Canadian Tax-Free Savings Account (TFSA), Registered Education Savings Plan (RESP), or Registered Disability Savings Plan (RDSP), your contributions can grow tax-free as far as your Canadian taxes are concerned. However, your earnings are subject to U.S. taxes, and you may need to report your account as a foreign grantor trust.
Your Canadian pension and retirement account earnings can be eligible for special treatment. Thanks to the U.S. – Canada tax treaty, any benefits paid from the Canada Pension Plans (CPP), Quebec Pension Plan (QPP) and Old Age Security (OAS) pension programs may not be subject to income tax.
Additionally, the U.S./Canada tax treaty allows you to defer U.S. tax on undistributed earnings from a Canadian Registered Retirement Savings Plan (RRSP) or Canadian Registered Retirement Income Fund (RRIF) in certain situations. However, while contributions to such accounts are also tax deferred, the RRSP and RRIF are still subject to FBAR and FATCA reporting.
You might need to report your Canadian retirement and pension on Form 1040. Your H&R Block tax advisor can help you determine if your earnings can be deferred and the appropriate reporting for your U.S. and Canadian taxes. Plus, if you choose to do both your Canadian and American taxes with Block, you’ll only need to provide your information once.
Taxes for U.S.-Canada commuters
Since Canada is America’s upstairs neighbor, there are situations in which you might find yourself popping over the border for work.
For example, let’s say you live in Detroit and work for a Canadian company in Windsor, or the opposite. You would still have to file a U.S. tax return, and you may also have to file a Canadian tax return. Because each situation is different, we recommend you file with an advisor and let them help determine whether you have to file both Canadian and U.S. taxes as a commuter.
Basics of Canada taxes for U.S. citizens
Do expats pay taxes in Canada? As a U.S. citizen working and living in Canada, yes, you may also have to file Canadian taxes:
- Canadian tax residents are taxed on all income, regardless of where it’s earned.
- Nonresidents are taxed on income from employment, business in Canada, investments in Canada and/or capital gains from the sale of a Canadian property.
Who qualifies as a Canada resident? We recommend you speak with a residency expert, but generally, you’re considered a Canadian resident if you maintain residential, social, and economic ties in Canada or if you stay in Canada more than 183 days.
Canada’s federal income tax rates range from 15% to 33%. Similar to taxes in the U.S., the percentage of tax that you pay increases as your income increases into different brackets. Depending on their tax bracket, some Americans would pay higher income tax rates locally than in the U.S.
It’s generally more favorable for Americans living in Canada to use the foreign tax credit vs. the FEIE—but there are exceptions. Your tax advisor can help you make the right decision.
2023-2024 Tax Rates
|15% on the first $53,359 of taxable income
|20.5% on the next $53,358 of taxable income (on the portion of taxable income over $53,359 up to $106,717), plus
|26% on the next $58,713 of taxable income (on the portion of taxable income over $106,717 up to $165,430), plus
|29% on the next $70,245 of taxable income (on the portion of taxable income over $165,430 up to $235,675), plus
|33% of taxable income over $235,675
Provincial/Territory tax rates top out from 11.5% to 25.75% Ontario has surtax of 20% and 56%
The tax filing season is similar to the U.S. tax year, but with a few differences. Canadian taxes follow a January to December tax year. Tax returns are due on April 30 for individuals and June 15 for self-employed taxpayers. In general, no extensions are allowed.
How to file U.S. taxes from Canada
It’s simple to file U.S. taxes from Canada with H&R Block’s Expat Tax Services. Here’s how to file your U.S. expat taxes online:
- Head on over to our Ways to File page
- Pick your journey—in the driver’s seat with our online DIY tool or letting a Tax Advisor take the wheel.
- Once you’re through your chosen journey, you review your return and pay
- We file your return with the IRS
- You sit back knowing your taxes were done right
How H&R Block can help Americans living in Canada with taxes
Thousands of U.S. expats living in Canada have chosen H&R Block to handle their U.S. expat taxes for the peace of mind their taxes are done right. Not only can you trust our expertise and guidance to find your credits and tax-saving opportunities, you can get it all done from the comfort of wherever you call home. Get started on your U.S. taxes today!
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