Hi,
I am in the midst of accepting an offer to work for a technology company in the US. However, I will be living in Canada and travelling almost every work week to work at various customer sites on the West coast.
I will be getting a TN for the short term as I qualify but will start the application process for an H1-B visa.
I need to understand where to begin in terms of taxes(forms, filings, witholding etc.). My employer has never hired a Canadian resident before, so has no clue either. I am assuming I will need to file a US tax return and claim foreign tax credits in my Canadian one. But have more questions around it:
1. I plan to work for a US employer but retain my Canadian residency. What income taxes do I need to file(forms etc.) and pay and how do I minimize taxes paid. I plan to reside in Calgary, AB, Canada. I plan to work on the West coast mainly(Washington, Oregon, California, Nevada, Hawaii and Alaska). I currently have a TN visa but am applying for an H1-B. I will be commuting almost every week at the beginning of the week, returning "home" on Fridays. Hence, I will be spending more than 183 days in any given year in the US.
2. What forms and statements do I need to provide to my potential employer to prepare for US tax withholding? How do I minimize tax withheld?
3. Do I have to pay a Social Security tax? How do I keep paying my CPP and EI in Canada as a Canadian resident? What do I need to do to inform my employer in the US?
4. How do I keep contributing to my RRSP's and not 401k's? From what I understand it would be to my detriment to contribute to a 401K.
5. As I will be traveling every week, there will be some travel and work related expenses that I will not be able to claim from my employer. How do I account for this? Also, I do not want my expenses(reimbursed from my employer) to show up as part of my Gross Income, as it really isn't.
6. How do I manage US to Canadian Dollar conversions for tax purposes? Due to the currency fluctuations, how can I minimize the impact?
7. Are there any limits to claiming foreign tax credits? Does this affect my RRSP advantages? If this is the best route to take.
8. When at "home" in Canada, I will be working for a home-office. Due to the nature of my work, I will need about 30% of my home space for exclusive office use and office equipment. What is the best method of expensing this or getting a tax-write-off on it?
Any advice would be greatly appreciated. Thanks!! [:D]
CDN resident working in the US for a US company
Moderator: Mark T Serbinski CA CPA
1. as long as you live in Canad you will report WORLD income to CRA and pay fed and provincial tax on all income.
you will pay IRS tax on any employment income you make in US, and will pay state tax on the wages earned in each state. You will, in effect be like a Toroto Maple Leaf, filing several tax returns, one for each staed he 'worked' in.
2. You need to present nothing to your employer. He has to withhold tax (and SS, see below). You can reduce the withholding by filing a W-4 with many exemptions. This has nothing to do with your fianl tax bill.
3. Yes, you will pay SS and medicare, since you are an EMPLOYEE. You can't keep paying CPP and EI, since your work will not qulaify for it. The only waty to keep paying Cdn CCP, and not SS, is to go into business for yourself. If you work 1.5 years in US, you will get *some* SS when you retire, under current rules.
4. You keep contibuting by depositing funds with your RRSP trustee, like anyone else. A 401(k) is not out of the question, but unnecessarily complicates matters. Try to get your employer to give you the equivalent of thier 'matching' to you directly. Some will, most won't.
5. Each tax regime handles expenses and reimbursments in different ways. Bottom line is that your goal should not be to save US tax, as any savings there will merrily be eaten up by your Cdn tax burden. Focus on keeping your Cdn tax low.
6. Have 2 large accounts, one in US and on in Canada. Reporting US amounts on your Cdn return is usually a simple matter of taking one yearly exchange rate. You can get more complicated as you wish.
7. Don't know what you mean.
8. It is unlikely that you will be able to expense this, unless you have ABSOLUTELY NO OFFICE ANYWHERE ELSE (which is unlikley). Working from home for your convenience is just that -- convenient. 30% of your home --- are you running a machine shop?
Bottom line: if you really want to have more money in your pocket at end of year, EITHER move to US, or become self-employed (You can on TN, but not on H1-B).
<i>nelsona non grata</i>
you will pay IRS tax on any employment income you make in US, and will pay state tax on the wages earned in each state. You will, in effect be like a Toroto Maple Leaf, filing several tax returns, one for each staed he 'worked' in.
2. You need to present nothing to your employer. He has to withhold tax (and SS, see below). You can reduce the withholding by filing a W-4 with many exemptions. This has nothing to do with your fianl tax bill.
3. Yes, you will pay SS and medicare, since you are an EMPLOYEE. You can't keep paying CPP and EI, since your work will not qulaify for it. The only waty to keep paying Cdn CCP, and not SS, is to go into business for yourself. If you work 1.5 years in US, you will get *some* SS when you retire, under current rules.
4. You keep contibuting by depositing funds with your RRSP trustee, like anyone else. A 401(k) is not out of the question, but unnecessarily complicates matters. Try to get your employer to give you the equivalent of thier 'matching' to you directly. Some will, most won't.
5. Each tax regime handles expenses and reimbursments in different ways. Bottom line is that your goal should not be to save US tax, as any savings there will merrily be eaten up by your Cdn tax burden. Focus on keeping your Cdn tax low.
6. Have 2 large accounts, one in US and on in Canada. Reporting US amounts on your Cdn return is usually a simple matter of taking one yearly exchange rate. You can get more complicated as you wish.
7. Don't know what you mean.
8. It is unlikely that you will be able to expense this, unless you have ABSOLUTELY NO OFFICE ANYWHERE ELSE (which is unlikley). Working from home for your convenience is just that -- convenient. 30% of your home --- are you running a machine shop?
Bottom line: if you really want to have more money in your pocket at end of year, EITHER move to US, or become self-employed (You can on TN, but not on H1-B).
<i>nelsona non grata</i>
Thanks Nelson,
Just a few more questions based on your responses:
1. While I have to pay taxes on all foreign income, I can offset this hit in Canada with a foreign tax credit right? Is the foreign tax credit applied directly to the overall amount of taxes owed after calculations?
2. What are examples in a W-4 exemption to reduce taxes? Also, do I fill out a 1040 or a 1040NR based on the fact that I am living in Canada but working in the US for more than 183 days in a year? Will I get any refunds back by filing a 1040 or 1040NR?(typically)
3. Do I qualify for SS after I retire(if current rules apply) even though I am an alien(which one would I be here resident or non-resident alien?)
4. So if I contribute to my RRSP's, I could still apply this to reduce my Canadian taxes owed? And if my employer is somehow matching, do I need to get them to do something special(forms etc.) to "transfer" the contribution to my RRSP instead?
5. Pretty Clear! Thanks
6. Who sets the yearly exchange rate? Or do I just use the lowest or average it through the year?
7. Is there a limit to how much you can earn and pay taxes on before you hit a ceiling on foreign tax credits? That is, for example, is there a hard limit or maximum to the amount of foreign tax credit you can apply?
8. I will need to maintain a home office, as this company has no offices in Canada. And I will be working out of the office when I am at home....
Thanks again for all the information. Much appreciated![:)]
Just a few more questions based on your responses:
1. While I have to pay taxes on all foreign income, I can offset this hit in Canada with a foreign tax credit right? Is the foreign tax credit applied directly to the overall amount of taxes owed after calculations?
2. What are examples in a W-4 exemption to reduce taxes? Also, do I fill out a 1040 or a 1040NR based on the fact that I am living in Canada but working in the US for more than 183 days in a year? Will I get any refunds back by filing a 1040 or 1040NR?(typically)
3. Do I qualify for SS after I retire(if current rules apply) even though I am an alien(which one would I be here resident or non-resident alien?)
4. So if I contribute to my RRSP's, I could still apply this to reduce my Canadian taxes owed? And if my employer is somehow matching, do I need to get them to do something special(forms etc.) to "transfer" the contribution to my RRSP instead?
5. Pretty Clear! Thanks
6. Who sets the yearly exchange rate? Or do I just use the lowest or average it through the year?
7. Is there a limit to how much you can earn and pay taxes on before you hit a ceiling on foreign tax credits? That is, for example, is there a hard limit or maximum to the amount of foreign tax credit you can apply?
8. I will need to maintain a home office, as this company has no offices in Canada. And I will be working out of the office when I am at home....
Thanks again for all the information. Much appreciated![:)]
1. Yes
The Cdn tax form is pretty clear on how the foreign tax credit is calculated.
2. Your withholding tax and your final tax are two separate issues. I wouldn't worry much about the withholding just follow the form.
You will have several chioces as to how to file. Pub 519 explains them all. Just rememeber that as a Cdn, you always have the right to file a full 1040. If you're married, you have to include spouse if filing jointly, or choose married filing singly.
3. Yes, you qualify by paying into the system, and having also paid into Cdn system for 10 years, with at least 1.5 years in US. The SS would be paid anywhere (except Cuba and some other enemy states).
4. It wll not be complicated; your employer will do nothing special. He pays you salary, you contribute to your RRSP. None of employers pay to you will be specially designated as RRSP money. All you are doing is asking the employer to give you in salry what they give to their US workers in matching funds. Some will, most won't.
5. I travel to work every day (its just shorter) and can't expense it. I doubt that you will be able to expense this as an employee. Certainly not in canada, and as I said, this is your major target for reducing your taxes.
6. bank of canada, US fed, you personally, ther is lots of leeway, as long as you are consistent and reasonable.
7. No.
8. Like I said, your comapny has an office for you (at their location) your home office is not *required* (it doesn't matter that you live far away from your office, or that it is in canada).
The only way this would work is if you meet clients there -- maybe. CRA takes a very hard line on this issue.
But as ia said, your home office is more for your convenience, not firm's.
I'll leve this to others, but in mty opinion, if you are going to remain resident in Canada (and if you are going to travel so much), look into becoming a contract self-employed worker. You are alloed to do this on TN.
<i>nelsona non grata</i>
The Cdn tax form is pretty clear on how the foreign tax credit is calculated.
2. Your withholding tax and your final tax are two separate issues. I wouldn't worry much about the withholding just follow the form.
You will have several chioces as to how to file. Pub 519 explains them all. Just rememeber that as a Cdn, you always have the right to file a full 1040. If you're married, you have to include spouse if filing jointly, or choose married filing singly.
3. Yes, you qualify by paying into the system, and having also paid into Cdn system for 10 years, with at least 1.5 years in US. The SS would be paid anywhere (except Cuba and some other enemy states).
4. It wll not be complicated; your employer will do nothing special. He pays you salary, you contribute to your RRSP. None of employers pay to you will be specially designated as RRSP money. All you are doing is asking the employer to give you in salry what they give to their US workers in matching funds. Some will, most won't.
5. I travel to work every day (its just shorter) and can't expense it. I doubt that you will be able to expense this as an employee. Certainly not in canada, and as I said, this is your major target for reducing your taxes.
6. bank of canada, US fed, you personally, ther is lots of leeway, as long as you are consistent and reasonable.
7. No.
8. Like I said, your comapny has an office for you (at their location) your home office is not *required* (it doesn't matter that you live far away from your office, or that it is in canada).
The only way this would work is if you meet clients there -- maybe. CRA takes a very hard line on this issue.
But as ia said, your home office is more for your convenience, not firm's.
I'll leve this to others, but in mty opinion, if you are going to remain resident in Canada (and if you are going to travel so much), look into becoming a contract self-employed worker. You are alloed to do this on TN.
<i>nelsona non grata</i>
Thanks again! Man, I guess I owe you a case of beer!
A few more follow ups:
1. I will be salaried by my employer on pre-sales type calls mostly, hence, the clients won't be getting charged. My employer is based in California; would I be paying state taxes in California?
2. Employment Insurance. Would the employer in the US be paying for this? And can I claim it through any IRS processes in case I get let go?
A few more follow ups:
1. I will be salaried by my employer on pre-sales type calls mostly, hence, the clients won't be getting charged. My employer is based in California; would I be paying state taxes in California?
2. Employment Insurance. Would the employer in the US be paying for this? And can I claim it through any IRS processes in case I get let go?
Yeah, Canadian beer, please.
1. Dunno. If its a California company, you will almost surely pay Cali tax. State tax laws are varied.
2. Generally employer pays UI, but cali has recently added an employment tax that may or may not be paid by employee. Hard to keep track of 50 states.
As to collecting UI if let go, this has nothing to do with IRS, just like EI in canada is not part of CRA. To collect you will have to apply thru HRDC Interstate office, who will direct you. They may tell you to apply directly thru California, but you should contact HRDC first (and quickly after lay-off, you have about 4 weeks to get set up).
<i>nelsona non grata</i>
1. Dunno. If its a California company, you will almost surely pay Cali tax. State tax laws are varied.
2. Generally employer pays UI, but cali has recently added an employment tax that may or may not be paid by employee. Hard to keep track of 50 states.
As to collecting UI if let go, this has nothing to do with IRS, just like EI in canada is not part of CRA. To collect you will have to apply thru HRDC Interstate office, who will direct you. They may tell you to apply directly thru California, but you should contact HRDC first (and quickly after lay-off, you have about 4 weeks to get set up).
<i>nelsona non grata</i>