Canadian moving to US as J-1

[ktgr8]

I'm a Canadian citizen moving to the US in J-1 status in Nov 2010. I have two questions:

1) Is my understanding correct that I will file income tax in both the US and Canada, receiving a tax credit in Canada for taxes paid in the US? Therefore, my tax rate will ultimately be whichever is higher between the two?

2) As my US salary for 2010 will be under $10K (being only for the months of Nov and Dec), I believe I am eligible for a tax treaty. What does this mean exactly?

[nelsona]

As a J-1, you are not considered US tax resident, neither by IRS rules, nor by treaty, so, in essence, it will be like you never left home.

So

1. Correct. You will file a 1040NR for US and a regular Cdn tax return for your province. You will rport only US wages on your 1040NR, and then use the tax paid on that return towrds your Cdn tax on that income. In theened you will likley pay the same rate as if you earned the money in Canada.

2. Yes. By Treaty article XV there is a provision whereby if a Cdn resident earns less than $10K in US in a calendar year, they are exempt form US tax on that wage. They are of course taxable in canada. You will file a 1040NR, and report ZERO for wages, and explain that you are using that atricle of the treaty. next year, because you will both earn more than 10K and be in US for more than 183 days, you cant use this.

[ktgr8]

Thanks for your reply!
So, with my US salary being taxable in Canada, using the tax treaty in 2010 does not actually save me any money overall?

[nelsona]

No. It isn't designed to save taxes, it is designed to simplify taxes.