Hi,
In 2008 I moved to Canada as a permanent resident and I worked as a self employed consultant during the year. Most, but not all of my revenue came from the US.
My question is do I have to pay self employment taxes in both countries for 2008 on all the revenue or it is prorated? In 2009 all of my self employment income will be based in Canada would I only pay self employment tax in Canada at that point?
Self Employment Tax
Moderator: Mark T Serbinski CA CPA
The totalization agreement between US and canada will, in essence, make you pay SS tax or CPP in only one jurisdiction (For self-employed it is where you reside):
So, on your Cdn return you will pay CPP on all the self-employed income you report, regardless of source (since you only report income earned as a Cdn resident). For your US return, you should only pay SE tax on the SE income earned before the move (since you still must report all world income on 1040 forever). You will therefore need a certificate of covergage, issued by the Cdn Govt, to exempt youform SS tax on the income earned after you left US.
http://www.ssa.gov/international/Agreem ... rtificate2
In 2009,you should pay no SE tax if you continue to live in canada.
Many people simply choose to continue paying SE tax, as it continues to build your SS balance, and SE tax is eligible for foreign tax deduction on your Cdn return. It become basically a second pension account. The SE tax usually doesn't push one's US tax burden higher that the Cdn total.
Technically, either the SSA (by refusing to accept your SE tax), or the Cdn govt (by denying your SE tax as a legitimate foreign tax) can insist that only CPP be paid, but I don't know of this happening.
So, on your Cdn return you will pay CPP on all the self-employed income you report, regardless of source (since you only report income earned as a Cdn resident). For your US return, you should only pay SE tax on the SE income earned before the move (since you still must report all world income on 1040 forever). You will therefore need a certificate of covergage, issued by the Cdn Govt, to exempt youform SS tax on the income earned after you left US.
http://www.ssa.gov/international/Agreem ... rtificate2
In 2009,you should pay no SE tax if you continue to live in canada.
Many people simply choose to continue paying SE tax, as it continues to build your SS balance, and SE tax is eligible for foreign tax deduction on your Cdn return. It become basically a second pension account. The SE tax usually doesn't push one's US tax burden higher that the Cdn total.
Technically, either the SSA (by refusing to accept your SE tax), or the Cdn govt (by denying your SE tax as a legitimate foreign tax) can insist that only CPP be paid, but I don't know of this happening.
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Just an aside that most tax software, even if you use the Foreign earned income exclusion (you might first use this in 2009, if at all, not likley in 2008 since your income is from US), will still calculate your SE tax without regard for your exemption (since most countries do not have a totalization agreemnet). You would most likley need to override this amount
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing