Working in the U.S., Living in Canada – A Complete Guide by a Montreal CPA Firm Near You

Introduction

With remote work on the rise and U.S. companies frequently hiring Canadian talent, many Canadians now earn income from the United States while continuing to live in Canada. However, cross-border employment introduces complex tax rules, including potential double taxation, U.S. filing obligations, foreign tax credits, and residency considerations. Misunderstanding these rules can lead to penalties, overpayment of tax, or missed deductions. This guide explains exactly how taxes work for Canadians who live in Canada but work for, or earn income from, the United States.

Legal and Regulatory Framework

Canadian tax residency rules state that Canadian residents are taxed on their worldwide income, regardless of where the income is earned. The Canada–U.S. Tax Treaty determines how income is allocated and prevents double taxation. U.S. tax rules require non-residents earning U.S. wage income to file a Form 1040-NR in many cases. Cross-border workers must coordinate: Canadian T1 tax returns, U.S. federal and possibly state tax returns, foreign tax credits, and Social Security/CPP coordination under the Totalization Agreement between Canada and the U.S.

Key Court Decisions

In Thompson v. Canada, the court reinforced that residency—not citizenship—determines Canadian tax liability. In Koh v. Canada, the taxpayer successfully argued that remote work for a U.S. employer did not create U.S. residency. In Caron v. Canada, foreign tax credit calculations were scrutinized, highlighting the need for accurate reporting. These cases confirm that proper coordination between both tax systems is essential.

Canadian Tax Obligations

If you live in Canada, you must report 100% of your U.S.-source employment income on your Canadian return, even if it was taxed in the U.S. You must also: convert income to CAD using CRA-approved exchange rates, report U.S. withholding taxes, and claim the foreign tax credit to avoid double taxation. CPP contributions usually apply if you physically perform your work in Canada, even for a U.S. employer. EI does not apply unless you pay into the Canadian system voluntarily.

U.S. Tax Obligations

Canadians working for a U.S. employer may need to file: Form 1040-NR to report U.S.-source income, state tax returns (depending on employer location or source rules), and W-8BEN forms to certify non-U.S. residency. However, if all work is performed from Canada, the Treaty often exempts Canadians from U.S. tax on employment income (Article XV), meaning U.S. withholding should not occur. The exception: if work is performed physically inside the United States, U.S. taxation applies.

Social Security vs. CPP

Under the Canada–U.S. Totalization Agreement, you normally contribute to: CPP if performing work physically in Canada, or U.S. Social Security if physically working in the U.S. You do not pay both due to coordination rules. Remote workers in Canada should remain on CPP and ensure their employer understands payroll compliance.

Avoiding Double Taxation

Double taxation is avoided through foreign tax credits: you claim a credit on your Canadian return for U.S. federal and state tax paid, limited to the Canadian tax payable on that income. Proper calculation is essential to avoid CRA reassessments.

State Tax Considerations

States such as California, New York, New Jersey, and Massachusetts may impose tax even if work was performed remotely. Tax rules vary by state and may require separate filings. Some states have strict sourcing rules based on employer location, not employee location.

Common Complications

Cross-border workers often face issues such as: improper U.S. payroll withholding, incorrect CPP vs. Social Security contributions, non-resident U.S. filing penalties, CRA foreign tax credit errors, failure to report worldwide income, tax residency misunderstandings, state tax surprises, and U.S. retirement plan reporting issues (401(k), Roth IRA, ESOP plans). Ignoring these issues can lead to audits on both sides of the border.

Mackisen Strategy

At Mackisen CPA Montreal, we help Canadians working for U.S. employers navigate all cross-border tax obligations. We prepare both Canadian and U.S. tax filings, correct payroll issues, calculate foreign tax credits properly, coordinate Treaty benefits, structure remote work arrangements to avoid unnecessary tax, advise on CPP/Social Security compliance, and defend clients during CRA and IRS reviews. Our expertise ensures full compliance and optimal tax results.

Real Client Experience

A Montreal engineer working remotely for a U.S. tech company avoided U.S. taxation after we applied Treaty Article XV and corrected payroll withholding. A consultant performing part-time work in the U.S. avoided double tax through proper credit calculations. A family moved back to Canada while keeping U.S. employment; we restructured payroll and secured credits for state tax paid. A cross-border professional facing IRS penalties for non-filing resolved issues through our coordinated filings.

Common Questions

Do I need to file taxes in both countries? Often yes—unless exempt under the Treaty. Does working remotely trigger U.S. tax? Not if all work is physically done in Canada. Do I pay CPP or U.S. Social Security? CPP if the work is done in Canada. What about stock compensation? U.S.-based stock options, RSUs, and ESPPs often require careful cross-border reporting.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal provides expert guidance for Canadians working in the U.S. while living in Canada. We ensure accurate filings, protect you from double taxation, and optimize every cross-border tax position.