Tax Implications for Canadian Permanent Resident and US LPR working for Canadian Company in US

[From_CAN_2_US 1,106]

I am moving to US in Feb 2022 on CR1. I am a Canadian Permanent Resident. I understand that I am authorised to work in the US remotely for my Canadian employer. I will no longer have a residence in Canada or any investments here. I will be residing in New Hampshire and will be working from home there.

 

I wanted to confirm what my tax implications would be. If you are familiar with US/ Canada taxation, please help to confirm/ correct my understanding of the following:

 

1. I would remain a Canadian tax resident, and need to pay income tax to both the province where my company is based and the federal Govt of Canada.

 

2. I would have to pay US federal income tax. However it would only be the difference between the taxes paid in Canada, if any. In other words I can avoid double taxation, because the Canadian tax is generally higher than the US.

 

3. Question - When filing taxes in the US, would there be any benefit of filing taxes “married filing separately” over “married filing jointly”? What are the pros and cons of both in my scenario.

 

If anyone has any resources to share, that would be appreciated. I couldn’t find much literature online about my scenario…

 

Thanks very much for reading, and I hope someone has advice for me…

[JeanneAdil 6,583]

First does the Canadian company have EIN to do business in the US?

 

To obtain an EIN, a Canadian corporation must file Form SS-4 with the IRS. Obtaining an EIN can also be done by applying to the IRS on-line, fax, mail or telephone. We recommend Canadian corporations apply for the EIN by telephone, by contacting the IRS at 267-941-1099.

 

If they do ,  for the 1st year (2022)  seek a good certified accountant or tax attorney and have them prepare the returns 

and if u continue with the company after ,  u will learn the ropes on filing 

[From_CAN_2_US 1,106]

7 minutes ago, JeanneAdil said:

First does the Canadian company have EIN to do business in the US?

 

To obtain an EIN, a Canadian corporation must file Form SS-4 with the IRS. Obtaining an EIN can also be done by applying to the IRS on-line, fax, mail or telephone. We recommend Canadian corporations apply for the EIN by telephone, by contacting the IRS at 267-941-1099.

 

If they do ,  for the 1st year (2022)  seek a good certified accountant or tax attorney and have them prepare the returns 

and if u continue with the company after ,  u will learn the ropes on filing 

The Canadian company will not be doing business in the US. The projects are based on Canada. I will be working on these projects, but will be living in the US.

[JeanneAdil 6,583]

6 minutes ago, From_CAN_2_US said:

The Canadian company will not be doing business in the US. The projects are based on Canada. I will be working on these projects, but will be living in the US.

I realize that but i say tax attorney or good accountant as it gets iffy with canadian and US tax reports and who to report to

consult one when u come and take their advice

we have US residents that cross the border daily to go to work

U will loose your Canadian health care so it factors in with what u do for tax returns

and paying into SS if you want to earn SS benefits and medicare when u retire (i know a long way off but important)

 

This site can help even though u are not a USC,  as LPR same tax returns apply to u

 

https://www.irs.gov/individuals/international-taxpayers/employees-of-a-foreign-government-or-international-organization-how-to-report-compensation

 

Individuals employed within the United States by a foreign employer are generally subject to Social Security and Medicare tax withholding by the foreign employer. Revenue Ruling 92-106, 1992-2 C.B. 258 provides detailed information on this subject. Certain exceptions to mandatory Social Security and Medicare tax coverage are listed in IRS Publication 15, Circular E, Employer's Tax Guide. However, individuals employed in the United States by a foreign employer may be exempt from U.S. Social Security and Medicare taxes under the terms of a Totalization Agreement.

[Boiler 45,756]

Normal to switch to a Contractor rather than an Employee, if you are an Employee there are all sorts of deductions and issues that I doubt your Employer will want to get involved with.

 

I agree something to discuss with your CPA/Employer.

[WOODHIKER 30]

What is the definition of a "canadian tax resident," as a Canadian I have never heard that phrase, I even googled it and couldn't find that phrase.  If you establish residency in the US wouldn't you be deemed a Canadian non-resident? The following link has some tax information for non-residents of Canada.

 

 Non-residents of Canada - Canada.ca

[Wuozopo 4,293]

7 hours ago, From_CAN_2_US said:

1. I would remain a Canadian tax resident, and need to pay income tax to both the province where my company is based and the federal Govt of Canada.

 

2. I would have to pay US federal income tax. However it would only be the difference between the taxes paid in Canada, if any. In other words I can avoid double taxation, because the Canadian tax is generally higher than the US.

You are taxed by the country where you reside (Tax treaty). You will owe Canadian taxes for payments received Jan 1 to Feb ?. You will owe the US for income received from Feb POE date to Dec31, 2022.  Your taxation is not based on where the business you earn from is located. It is based on your place of residence. Get off the Canadian tax roles when you move.

There is a provision where, for example, you were sent by a Canadian firm to the US FOR LESS THAN 5 years you would continue to accrue your Canadian social security plan and be exempt from US Social Security. But if you intend to make the move to the US permanent, you should pay into US Social Security once you move. 
 

7 hours ago, From_CAN_2_US said:

Question - When filing taxes in the US, would there be any benefit of filing taxes “married filing separately” over “married filing jointly”? What are the pros and cons of both in my scenario.

Probably not. I used to work it out both ways thinking separate may be better. It never was. For one thing the taxation bracket is lower on a joint return. And there are a few tax benefits (that may not even matter to you) that you could not claim if filing separately. 

 

7 hours ago, From_CAN_2_US said:

The Canadian company will not be doing business in the US. The projects are based on Canada. I will be working on these projects, but will be living in the US.

Above was your question about why your employer would need an Employer Identification Number (EIN). He would need one because his employee (you) will be residing in the US and he must report your earnings to the IRS.  There are two scenarios for you under the IRS.

• Employee - If you remain classified  an employee, then your employer must withhold from each check,  your US tax, Social Security, and Medicare contributions. He also pays half of your social security contribution. He must transmit those funds to the IRS each pay period. And at the end of the tax year he must issue you a W2 year end wage statement and provide same to the IRS. He needs an EIN for that reporting. The W2 will show your gross earnings and the amount of money payed in on your behalf for you taxes, SocialSecurity, and Medicare. There are businesses that he can pay to do all that reporting and submitting money to the IRS for him.
• Self-Employed Contractor- if you became a contractor of your current employer, he does not have hold out anything from your check or send money to the IRS. He pays you the gross pay with no taxes withheld. You are responsible for paying in your own income tax withholding to the IRS on a quarterly basis. You are considered “self-employed” by the IRS. Your income will be reported on your tax return on a Schedule C and your Social Security and Medicare contributions are calculated on Schedule SE.  And at the end of the tax year your Canadian employer must issue you a 1099-NEC year end wage statement and provide same to the IRS. He needs an EIN for that reporting.  

Edited January 2, 2022 by Wuozopo

[carmel34 3,646]

Dual US/Canadian citizen here.  I have had to deal with similar issues for years, moving back and forth between the two countries.  When you leave Canada to move to the US permanently, you will have to file a US tax return with the IRS, plus a state tax return if your US state of residence has income tax (New Hampshire does not, but does tax interest and dividends).  Since your income will be from a Canadian employer, you will need to continue filing tax returns with Revenue Canada, as your Canadian employer will be required to deduct taxes from your pay as required by Canadian tax law.  There is a US/Canada tax treaty that helps to reduce double taxation in these situations, but it does not entirely eliminate it.  A good tax accountant who knows how to navigate these situations is very hard to find, but is recommended because of all the complexities.  Here are two resources that may help you get started.  Good luck!

 

https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/leaving-canada-emigrants.html

 

https://www.irs.gov/forms-pubs/about-publication-597

[Sagior 15]

As a foreign resident(Not of Canada) I learn that it is wise always to file taxes in both countries even if you don't have any income to report.

According to US agreement with other countries, a person to avoid double taxation, considered tax resident of a country, if he lives there at least 183 days per year. In this case, that person will file and pay in the foreign country only. In the US(if you want) you will file as a foreign tax resident If you receive your income in dollars, you must change the total income amount to the foreign currency of that country and pay taxes according to their laws. You have to read the US/Canada agreement to avoid double taxation. There are few differences for income received from Gov., or private pensions.  

 

https://www.irs.gov/pub/irs-trty/canada.pdf

[From_CAN_2_US 1,106]

3 hours ago, carmel34 said:

Dual US/Canadian citizen here.  I have had to deal with similar issues for years, moving back and forth between the two countries.  When you leave Canada to move to the US permanently, you will have to file a US tax return with the IRS, plus a state tax return if your US state of residence has income tax (New Hampshire does not, but does tax interest and dividends).  Since your income will be from a Canadian employer, you will need to continue filing tax returns with Revenue Canada, as your Canadian employer will be required to deduct taxes from your pay as required by Canadian tax law.  There is a US/Canada tax treaty that helps to reduce double taxation in these situations, but it does not entirely eliminate it.  A good tax accountant who knows how to navigate these situations is very hard to find, but is recommended because of all the complexities.  Here are two resources that may help you get started.  Good luck!

 

https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/leaving-canada-emigrants.html

 

https://www.irs.gov/forms-pubs/about-publication-597

Thank you. I was wondering if you could refer me to a tax accountant you may have used before and have found to be knowledgeable in these matters.

[carmel34 3,646]

2 hours ago, From_CAN_2_US said:

Thank you. I was wondering if you could refer me to a tax accountant you may have used before and have found to be knowledgeable in these matters.

The first year that I had to file tax returns in both the US and Canada, I tried to find an experienced tax accountant to help.  First I tried in the US, but in the area I was living at the time (Colorado), all of the many firms I reached out to only had experience with the US.  Then I tried Alberta, Canada, but the tax accountants there only knew Canadian tax law.  So I gave up and read all of the relevant tax laws, forms, US/Canada tax treaty, and guides in both countries and filed both returns myself.  I have an MBA and quite a bit of accounting knowledge so I was able to do it on my own, calling the IRS and Revenue Canada when I had any questions.  The last time I filed returns in both the US and Canada, I did it myself again and didn't bother looking for a tax accountant.  I suggest that you try looking in a big Canadian city like Toronto or Vancouver, you'll most likely be able to find one or more there who can help you.  When I left Canada for good many years ago, I filed a "departing resident" form with Revenue Canada.  In your case it is a bit more complicated since you will continue to work for an employer based in Canada after you move to the US.  Good luck!

[From_CAN_2_US 1,106]

16 hours ago, WOODHIKER said:

What is the definition of a "canadian tax resident," as a Canadian I have never heard that phrase, I even googled it and couldn't find that phrase.  If you establish residency in the US wouldn't you be deemed a Canadian non-resident? The following link has some tax information for non-residents of Canada.

 

 Non-residents of Canada - Canada.ca

A tax resident for any country is when that person is categorised as a resident for tax purposes.

 

https://en.wikipedia.org/wiki/Tax_residence

https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency/Canada-Residency-EN.pdf

 

Thanks for the link you provided. I guess I will not be a tax resident.