Hi,
From Feb 05 to June 05 I was on contract as an independent contractor to a company in the US. I am a canadian working independently (not company sponsored) and I was on a TN visa. The company paid me directly with no tax deduction. While there I filed form 8233 with the company and IRS. I believe I can claim a number of tax treaty agreements to not pay tax (income and SE) to the US. When tax time comes around I believe I need to file; 1040NR, Form 8833 (treaty Article XIV), Form 8840 (closer connection), copy of Form 8233, Copy of CPT56 (social sec. agree.) and a copy of my cdn T1 all to the IRS. Is this correct, will it eliminate US tax if all US income is declared to canada? Is there anything else I should be careful about? I want to avoid US tax since they will deduct 12% for the self-employment tax.
Thanks in advance
Dean
SE Cdn as independent contractor in US
Moderator: Mark T Serbinski CA CPA
Sounds right.
That is the great advantage that self-employeds have if they work in US and live in Canada. No SE tax, and no IRS tax.
You do have to watch that your STATE of work doesn't tax you though, as hockey players often pay state tax even if they owwe nothing to IRS, since the treaty doesn't bind the states.
Check with a local accountant in the stste where you worked
<i>nelsona non grata... and non pro</i>
That is the great advantage that self-employeds have if they work in US and live in Canada. No SE tax, and no IRS tax.
You do have to watch that your STATE of work doesn't tax you though, as hockey players often pay state tax even if they owwe nothing to IRS, since the treaty doesn't bind the states.
Check with a local accountant in the stste where you worked
<i>nelsona non grata... and non pro</i>
Thanks Nelson,
I worked in MA and unfortunately I believe I have to pay state tax since income was >8k, see below
If the United States has a tax treaty with another country, Massachusetts will recognize the treaty and will exclude income to the extent it is excluded federally. However, an individual may still need to file a return if his or her income exceeds the threshold requirement for filing a tax return.
Nonresidents whose Massachusetts gross income exceeds $8,000 or the personal exemption to which they may be entitled, whichever is less, are required to file a Massachusetts income tax return.
I should be able to use any tax paid to MA as a Credit to my Cdn taxes, right? Do you think I can avoid paying state medicare/SS tax to MA with the treaty agreements (CPT56)?
Cheers
Dean
I worked in MA and unfortunately I believe I have to pay state tax since income was >8k, see below
If the United States has a tax treaty with another country, Massachusetts will recognize the treaty and will exclude income to the extent it is excluded federally. However, an individual may still need to file a return if his or her income exceeds the threshold requirement for filing a tax return.
Nonresidents whose Massachusetts gross income exceeds $8,000 or the personal exemption to which they may be entitled, whichever is less, are required to file a Massachusetts income tax return.
I should be able to use any tax paid to MA as a Credit to my Cdn taxes, right? Do you think I can avoid paying state medicare/SS tax to MA with the treaty agreements (CPT56)?
Cheers
Dean
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Norbert Schlenker
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Make sure that you do not run afoul of the "fixed base" provisions in the treaty. Easiest is to keep your contracts short.
I know of people who consulted for arms length clients in the other country, in office space provided by the client and without crossing any 183 day rules. Because the contracts were with one client and exceeded a year elapsed, they were deemed to be working out of a fixed base and thus subject to taxation in the working country. I've seen that happen to US residents consulting in Canada and Canadian residents consulting in the US.
Watch yourself.
I know of people who consulted for arms length clients in the other country, in office space provided by the client and without crossing any 183 day rules. Because the contracts were with one client and exceeded a year elapsed, they were deemed to be working out of a fixed base and thus subject to taxation in the working country. I've seen that happen to US residents consulting in Canada and Canadian residents consulting in the US.
Watch yourself.
You won't be on the hook for SS/Medicare because of your compliance letter.
AS for counting days of presence (which is not quite what Norbert was referring to, which was duration of the relationship) any part of a day is counted.
However, Cdn independant servivce providers (ie. contractors) are not strictly limited to the 183 day rule for becoming taxable, since they can always claim closer connection to Canad so long as their centre of vital interests is there, regardless of how many days they spend in US.
But, to be safest, best to not exceed 183 days -- which also keeps you on the good side of your Provincial Health coverage.
<i>nelsona non grata... and non pro</i>
AS for counting days of presence (which is not quite what Norbert was referring to, which was duration of the relationship) any part of a day is counted.
However, Cdn independant servivce providers (ie. contractors) are not strictly limited to the 183 day rule for becoming taxable, since they can always claim closer connection to Canad so long as their centre of vital interests is there, regardless of how many days they spend in US.
But, to be safest, best to not exceed 183 days -- which also keeps you on the good side of your Provincial Health coverage.
<i>nelsona non grata... and non pro</i>
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by cdnkayak</i>
Great, but to confirm the tax I pay to MA should count as credit for my Canadian return, correct?
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
If you're required to pay it, it should be eligible for foreign tax credit treatment.
BUT, you quoted something above which says that MA follows the Treaty and allows the same income to be excluded if it is excluded for Federal purposes. It appears the return filing requirement is simply to report that you qualify for the Treaty exemption. In other words, from what you've said, you would not be required to pay any MA tax. No?
Here are the instructions:
http://www.massdor.com/help/guides/abat ... eaties.htm
Great, but to confirm the tax I pay to MA should count as credit for my Canadian return, correct?
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
If you're required to pay it, it should be eligible for foreign tax credit treatment.
BUT, you quoted something above which says that MA follows the Treaty and allows the same income to be excluded if it is excluded for Federal purposes. It appears the return filing requirement is simply to report that you qualify for the Treaty exemption. In other words, from what you've said, you would not be required to pay any MA tax. No?
Here are the instructions:
http://www.massdor.com/help/guides/abat ... eaties.htm
Carson,
An important point is if you exceed the threshold, 8K, you must pay MA tax.
Thus most hockey players have to pay tax to MA if the play one game against the bruins (assuming most make more than 1 million/season. I believe this also works for people living in NH, ME but work in MA (which there are a number).
An important point is if you exceed the threshold, 8K, you must pay MA tax.
Thus most hockey players have to pay tax to MA if the play one game against the bruins (assuming most make more than 1 million/season. I believe this also works for people living in NH, ME but work in MA (which there are a number).
Hockey players are NOT independant contractors, thus do not necessarily fall under the same exemptions that you do.
There are separate treaty provisions for atheltes and for Independant contractors, with the contrator clause much more liberal.
The link that Carson provided CLEARLY indicates that Mass will exempt the same income as IRS.
That said, I would simply repeat my advice to check locally as to whether you have met the fixed-base statute of Mass.
You may indeed have to file a return, just like you have to file a 1040NR, but this may merely be to avail yourself of the treaty. Otherwise , how are they to know that you are exempt.
<i>nelsona non grata... and non pro</i>
There are separate treaty provisions for atheltes and for Independant contractors, with the contrator clause much more liberal.
The link that Carson provided CLEARLY indicates that Mass will exempt the same income as IRS.
That said, I would simply repeat my advice to check locally as to whether you have met the fixed-base statute of Mass.
You may indeed have to file a return, just like you have to file a 1040NR, but this may merely be to avail yourself of the treaty. Otherwise , how are they to know that you are exempt.
<i>nelsona non grata... and non pro</i>