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What are the tax implications working in Canada and living in the US? |
I have a job offer in Canada, and I am not sure who to talk to about the the tax situation. Will I have to pay Canadian taxes as well as US Federal and state etc...........Any help would be appreciated. If it matters I live in the greater Detroit area. There is a double tax treaty between the US and Canada. One of it's purposes is to avoid double taxation on the same income. The relevant part of the treaty dealing with employment is: "Article XV Dependent Personal Services 1. Subject to the provisions of Articles XVIII (Pensions and Annuities) and XIX (Government Service), salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in the State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State. 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in a calendar year in the other Contracting State shall be taxable only in the first-mentioned State if: (a) Such remuneration does not exceed ten thousand dollars ($10,000) in the currency of that other State; or (b) The recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in that year and the remuneration is not borne by an employer who is a resident of that other State or by a permanent establishment or a fixed base which the employer has in that other State. 3. Notwithstanding the provisions of paragraphs 1 and 2, remuneration derived by a resident of a Contracting State in respect of an employment regularly exercised in more than one State on a ship, aircraft, motor vehicle or train operated by a resident of that Contracting State shall be taxable only in that State." As you can see whether you are taxed in Canada or the US depends on your level of income and the number of days you spend in Canada. You can download the full treaty from the Internet. You will only be taxed in one country. Cross-border taxation is a frequent issue between Canada and the US and does not usually cause any problems. However you may be able to get more information from your employer and an accountant/tax lawyer may be able to take advantage of tax planning opportunities so that you tax can be reduced. You'll probably be subject to income tax in both countries, but should wind up paying only the higher of the two taxes. You will be entitled to a credit against US tax for Canadian tax that you pay, up to the amount of US tax attributable to your Canadian income. There are some steps you may need to take to ensure that you do not pay social security taxes in Canada. Consult a local tax advisor who is familiar with the treatment of commuters between the US and Canada. ------------------------------... Note on the answer below: treaty interpretation is not for amateurs! You will probably also pay Canadian provincial taxes (similar to our state taxes). Most U.S. states offer a credit against their tax liability for Canadian provincial taxes paid on the same income - if you elect not to claim the same taxes as federal foreign tax credits. I am not sure if Michigan does this. As TaxGuru said, you should just end up paying the highest of the combined rates that apply in Canada or in Michigan, assuming your taxes are prepared properly. |
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