I am planning to declare non-residency in Canada and work as a self employed individual in the US, and have several concerns:
1. Are there any disadvantages of doing so?
2. What are my best options for medicare?
3. I've seen that federal and state tax rates for MA for my tax bracket is about 30 (highest bracket)%. On top of that, how much would I be paying for self employment taxes and other miscellaneous taxes?
Thanks a lot for your feedback!
Simon
Questions for Canadian moving to US
Moderator: Mark T Serbinski CA CPA
The decision to go from Cdn-resident contractor to US-resident contractor is not as cut-and-dried as it is for an employee.
I presume, at this point, you are not required to report your taxes to IRS. You might have to report to MA (check thir rules) , even if you don't report to IRS. That is because IRS must abide by treaty, while MA does not.
If you did move, then, on top of MA tax, fed tax would kick in, including, As you are aware, Self-employment tax is about 15% (which is double the FICA for an employee). If you continue to live in Canada, the added CPP is ceratinly less.
You will also need your own medical coverage, which you would not need if you maintained residency in canada AND stayed in canada the required days. You would need some form of extra coverage when in US (like snowbird/vactation coverage). don't rely solely on your provincial coverage when in US, even if it is still valid.
I guess the biggest factors to consider whether to make the break would be (a) if you are out of Canada more than 183 days (154 days for ontario) your Cdn medial coverage is no longer valid anyways; pretending to live in Canada doesn't work. (B) the cost of maintaining your Cdn residence on top of your MA one.
I presume, at this point, you are not required to report your taxes to IRS. You might have to report to MA (check thir rules) , even if you don't report to IRS. That is because IRS must abide by treaty, while MA does not.
If you did move, then, on top of MA tax, fed tax would kick in, including, As you are aware, Self-employment tax is about 15% (which is double the FICA for an employee). If you continue to live in Canada, the added CPP is ceratinly less.
You will also need your own medical coverage, which you would not need if you maintained residency in canada AND stayed in canada the required days. You would need some form of extra coverage when in US (like snowbird/vactation coverage). don't rely solely on your provincial coverage when in US, even if it is still valid.
I guess the biggest factors to consider whether to make the break would be (a) if you are out of Canada more than 183 days (154 days for ontario) your Cdn medial coverage is no longer valid anyways; pretending to live in Canada doesn't work. (B) the cost of maintaining your Cdn residence on top of your MA one.
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... and commuting to canada the sufficient days to maintain residency.
in truth, being a contactor in US does NOT have the great advantages that it does in canada. That is why contarctors in US insist on at least 50% if not more than employees make.
in truth, being a contactor in US does NOT have the great advantages that it does in canada. That is why contarctors in US insist on at least 50% if not more than employees make.
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Thanks for that great insight. I've always heard how much less the tax is in the US, but when I did the math, it didn't seem the case for SE contractor.
To be sure, i definitely will be out of Canada for more than 183 days. My residence in canada will be maintained by my parents regardless of my decision actually. I do have BlueCross travellors insurance right now, but this would have to change to real isnurance if I made the move. Do you know of any health insurance providers I could contact?
One of the reasons for considering contracting is the claim expenses, but since I am renting an apt in MA, and do not own a car, I do not have significant deductions. I actually do have the option to work under W2 as an employee instead of contractor, at same hourly rate - but taxes would be withheld. Should I consider this route? Basically I'm wondering what my tax option would be, net of health insurance.
On commuting to canada to maintain residency - if I still have closer ties to canada, do I still need to be present in canada?
Thanks again!
Simon
To be sure, i definitely will be out of Canada for more than 183 days. My residence in canada will be maintained by my parents regardless of my decision actually. I do have BlueCross travellors insurance right now, but this would have to change to real isnurance if I made the move. Do you know of any health insurance providers I could contact?
One of the reasons for considering contracting is the claim expenses, but since I am renting an apt in MA, and do not own a car, I do not have significant deductions. I actually do have the option to work under W2 as an employee instead of contractor, at same hourly rate - but taxes would be withheld. Should I consider this route? Basically I'm wondering what my tax option would be, net of health insurance.
On commuting to canada to maintain residency - if I still have closer ties to canada, do I still need to be present in canada?
Thanks again!
Simon
If you have the option of being paid the same hourly rate as an employee vs. independent contractor, you will want to take the employee route.
This assumes that:
1. There is some health coverage provided by the employer and they pay for a good share of it;
2. They have a 401(k) plan and make some basic or matching contributions.
Nelson is correct. When an employee goes to independent contractor status, they usually need 40 to 50% more income to cover the self-employment taxes and benefits.
This assumes that:
1. There is some health coverage provided by the employer and they pay for a good share of it;
2. They have a 401(k) plan and make some basic or matching contributions.
Nelson is correct. When an employee goes to independent contractor status, they usually need 40 to 50% more income to cover the self-employment taxes and benefits.
Arteeh
MA has its own insuarnce regime, courtesy of Mitt Romney; it is pointles for us to discuss this here. Ask someone on the ground in MA.
You are correct that once your 183 days have passed, and your provincial covergae is no good, your blue-cross travel insuarnce is no good either.
If you live in Ontario -- and since most Ontarians don't say they are from Ontario, since they expect everyone is, so I'll assume you are too -- you can petition OHIP to keep you covered under the guise that you are intending to come back. I'm not sure how long this extension lasts, but that is also a possible solution that would keep you off the US insurance market.
Quite frankly, if you are a contractor being offered the same wage to become an employee, you should (a) jump at the chance, and (b) let it be known that you obviously were being underpaid as a contractor.
I do not know of a self-employed contractor that is not getting paid 50% or more than the employee sitting beside him, and I know dozens of contractors, in 8 or 9 differing disciplines, from Engineering to training to tech writing.
You are correct that once your 183 days have passed, and your provincial covergae is no good, your blue-cross travel insuarnce is no good either.
If you live in Ontario -- and since most Ontarians don't say they are from Ontario, since they expect everyone is, so I'll assume you are too -- you can petition OHIP to keep you covered under the guise that you are intending to come back. I'm not sure how long this extension lasts, but that is also a possible solution that would keep you off the US insurance market.
Quite frankly, if you are a contractor being offered the same wage to become an employee, you should (a) jump at the chance, and (b) let it be known that you obviously were being underpaid as a contractor.
I do not know of a self-employed contractor that is not getting paid 50% or more than the employee sitting beside him, and I know dozens of contractors, in 8 or 9 differing disciplines, from Engineering to training to tech writing.
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Sorry, I mean to say that I will be paid under the guise of an employee, but besides the salary, there are no other benefits. This is the arrangement through an IT recruiting agency. The terms of "employment" would still be the same as a contractor, except they would file W2 instead of 1099, and they would withold taxes and SS, which they currently do not.
And you are absolutely correct - I'm from Toronto - and I will definitely investigate the OHIP extension option.
Last related question - right now I have registered a sole prop in Ontario - basically a doing business as name. Could this be used to establish a residential tie to Canada? I would still like to keep this name, open a bank account with BOA using this registration instead of filing for a new sole prop in MA. Would this be possible?
Thanks again for your time and replies!
Simon
And you are absolutely correct - I'm from Toronto - and I will definitely investigate the OHIP extension option.
Last related question - right now I have registered a sole prop in Ontario - basically a doing business as name. Could this be used to establish a residential tie to Canada? I would still like to keep this name, open a bank account with BOA using this registration instead of filing for a new sole prop in MA. Would this be possible?
Thanks again for your time and replies!
Simon
By treaty, you can only reside in one country, regardless of the time spent in either country.
To claim that you were a US resident by treaty, you would need to show that your ties are more in US, regardless of time in canada.
To claim your are Cdn resident by treaty, you would need to show that your ties are more in canada that US, regardless of time spent in US.
8840 is specifically for those who meet SPT formula, but are NOT meet the 183 days. it is not for determining treaty non-residency.
If you meet the 183 days, you can;'t use 8840 to claim you are non-resident, you must use the TREATY, which would mean a treaty claim 8833. this is neatly explained in the instructions for 8840, line 6.
Most people do not want to maintain Cdn residency while in US, so are quite happy to meet SPT, and even claim US residency without SPT. Your case, in which you may determine it better to be considered Cdn resident is rare.
This only takes care f income tax. If you are wanting to avoid FICA, you may need to use the complaince arrangements set out in the Social security treaty to make sure you are fica exempt. You would want to do this even if you think that you are fine with the income tax.
And you would still need to keep an eye to maintaining your OHIP quals.
To claim that you were a US resident by treaty, you would need to show that your ties are more in US, regardless of time in canada.
To claim your are Cdn resident by treaty, you would need to show that your ties are more in canada that US, regardless of time spent in US.
8840 is specifically for those who meet SPT formula, but are NOT meet the 183 days. it is not for determining treaty non-residency.
If you meet the 183 days, you can;'t use 8840 to claim you are non-resident, you must use the TREATY, which would mean a treaty claim 8833. this is neatly explained in the instructions for 8840, line 6.
Most people do not want to maintain Cdn residency while in US, so are quite happy to meet SPT, and even claim US residency without SPT. Your case, in which you may determine it better to be considered Cdn resident is rare.
This only takes care f income tax. If you are wanting to avoid FICA, you may need to use the complaince arrangements set out in the Social security treaty to make sure you are fica exempt. You would want to do this even if you think that you are fine with the income tax.
And you would still need to keep an eye to maintaining your OHIP quals.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Keats has a border guide, but it will not address your situation.
Another factor to consider is: Do you intend to live the rrst of your life in US? If so, you may want to start paying fica etc so that you will have a bigger fund when you retire.
I think I summed up your decison in my first repsonse to you: You need to decide if the costs of maintaining a Cdn presence, including the commute to stay enough nights is worth the overall tax difference plus the added health care costs.
If you view Fica as a forced investment you will get back rather than a tax , and you are young and in good health, and don't see your self spending 3 nights a week in Ontario. Then the decision is made.
Another factor to consider is: Do you intend to live the rrst of your life in US? If so, you may want to start paying fica etc so that you will have a bigger fund when you retire.
I think I summed up your decison in my first repsonse to you: You need to decide if the costs of maintaining a Cdn presence, including the commute to stay enough nights is worth the overall tax difference plus the added health care costs.
If you view Fica as a forced investment you will get back rather than a tax , and you are young and in good health, and don't see your self spending 3 nights a week in Ontario. Then the decision is made.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
I don't know if I will retire in the US - probably not - but that is soo far away (I am 26)
But you are right in that I don't plan to commute to Toronto with any regularity, and would definitly meet spt in us. I am just in a qualm over whether there is benefit to claiming canadian residency via treaty as you mentioned. I haven't quite been convinced either way. What are the downsides of being taxed as a canadian resident? Could I claim rent as an expense if I were to remain a can res?
But you are right in that I don't plan to commute to Toronto with any regularity, and would definitly meet spt in us. I am just in a qualm over whether there is benefit to claiming canadian residency via treaty as you mentioned. I haven't quite been convinced either way. What are the downsides of being taxed as a canadian resident? Could I claim rent as an expense if I were to remain a can res?