Hi, I am a Canadian citizen and in the following work situation for the last 7 years:
- live in Canada and work for a US company from my home office; I work for about 50 days in the US (I usually travel to the US for 1 week each month)
- I am on the US payroll (I receive a W2, not a T4) and file US and Canadian taxes; I claim all the taxes I pay to the US on my Canadian return as a foreign tax credit
I am currently 37 yrs old and if I continue to work in this situation for a number of years I am wondering how this will affect my ability to receive either the US social security or Canada Pension Plan(CPP)/Old Age Security (OAS) when I retire? I do pay into the US Social Security plan, but I do not pay directly into the Canadian public pensions, CPP or OAS.
Any information will be greatly appreciated. Thanks.
US Commuter - Effect on CPP and OAS
Moderator: Mark T Serbinski CA CPA
First point is that you should not be on US payroll. You live and work in canada, so should either be a Cdn employee, or a contractor. You are not really a commuter, which is someone who works in US, and lives in Canada. More on that in a minute.
As to your question, since you are treating yourself as a US worker, then you can only contribute to SS, there fore you are not getting any CPP credits; your OAS is fine since you live in Canada.
You will get whatever CPP you earned before and in future.
Now to the problem: SSA takes the position that if you pay into SS as an employee, then you must also have had legal work status in US (or else why would you be paying into SS). This is to avoid paying SS to illegal workers, but *could* have a bad effect on people in your situation. Do you have a leal US work status (since you obviously have an SSN, you must have at some point)?
This is not 100% certainty, but it is a possibility. Just something to consider. I do not know of anyone who has been denied SS on this basis.
I'm surprised CRA has not questioned your situation, since you are paying little if any tax to Canada, when in fact your work is done in canada so is Cdn-sourced (which means canada and province should be getting first crack at your income tax). At a minimum, 75% of your wages should not be eligible for foreign tax credit.
As to your question, since you are treating yourself as a US worker, then you can only contribute to SS, there fore you are not getting any CPP credits; your OAS is fine since you live in Canada.
You will get whatever CPP you earned before and in future.
Now to the problem: SSA takes the position that if you pay into SS as an employee, then you must also have had legal work status in US (or else why would you be paying into SS). This is to avoid paying SS to illegal workers, but *could* have a bad effect on people in your situation. Do you have a leal US work status (since you obviously have an SSN, you must have at some point)?
This is not 100% certainty, but it is a possibility. Just something to consider. I do not know of anyone who has been denied SS on this basis.
I'm surprised CRA has not questioned your situation, since you are paying little if any tax to Canada, when in fact your work is done in canada so is Cdn-sourced (which means canada and province should be getting first crack at your income tax). At a minimum, 75% of your wages should not be eligible for foreign tax credit.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks for the prompt response Nelsona.
To answer you question regarding my status, yes, I do have legal work status in the US. I did work and live in the US for 5 yrs, then moved back to Canada and continued to work for the same company from home office. I am currently on a TN work visa. Also, the CRA has not complained about the way my taxes are filed.
So, it sounds like you are saying if I continue in my current setup I will be entitled to SS payments from the US when I reach the eligible age. Correct?
It also sounds like you are recommonding the following:
I should try to get on the Canadian payroll (my company does have a couple of Canadian offices) OR if I stay in my current situation I should request a huge refund from the US to be paid to the CRA based on the number of days I spend in Canada?
Thanks.
To answer you question regarding my status, yes, I do have legal work status in the US. I did work and live in the US for 5 yrs, then moved back to Canada and continued to work for the same company from home office. I am currently on a TN work visa. Also, the CRA has not complained about the way my taxes are filed.
So, it sounds like you are saying if I continue in my current setup I will be entitled to SS payments from the US when I reach the eligible age. Correct?
It also sounds like you are recommonding the following:
I should try to get on the Canadian payroll (my company does have a couple of Canadian offices) OR if I stay in my current situation I should request a huge refund from the US to be paid to the CRA based on the number of days I spend in Canada?
Thanks.
You were eligible anywys, by your Cdn history. In 3 years you will have enough SS credits to earn it on your own.
I weould not be amending your return unless CRA requests it. You may wish to remain on US payroll until yourget 40 SS credits, at this point.
But, realize that being on US payroll is not much good to you for fringe benefits, since they aren't much good in canada, so you are paying these for nothing. You would be best off as a contractor, with a sizeable increase in remuneration rather than becominga Cdn employee, but those really are your 2 long-term options.
I weould not be amending your return unless CRA requests it. You may wish to remain on US payroll until yourget 40 SS credits, at this point.
But, realize that being on US payroll is not much good to you for fringe benefits, since they aren't much good in canada, so you are paying these for nothing. You would be best off as a contractor, with a sizeable increase in remuneration rather than becominga Cdn employee, but those really are your 2 long-term options.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
I believe I am eligible now for SS since I have paid into the plan for 12 years (5 yrs in US and 7 years working from Canada). The US SS plan seems to be a little better than the CPP and I will get the Canadian OAS even if I stay in my current situation. You are partially correct on the fringe benefits. I ended up cancelling my health insurance since it was of no use in Canada (I am currently on my wifes plan). However, I can use my eye and dental care insurance in Canada so I kept those. I also can now deduct my 401k contributions so I kept that going as well.
Curious as to why you think I would be better off as a contractor as opposed to becoming a Cdn employee? Also, I was actully thinking I would continue as is since the CRA is not complaining. If my wife leaves her job and I need the health insurance for my family I was going to try and switch to the Canadian payroll.
Curious as to why you think I would be better off as a contractor as opposed to becoming a Cdn employee? Also, I was actully thinking I would continue as is since the CRA is not complaining. If my wife leaves her job and I need the health insurance for my family I was going to try and switch to the Canadian payroll.
Sounds good. I wasn't sure if the 7 years had included your 5 years in US or not. You didn't say what your status in US was (it has to be TN or H1, not B2).
The reason to go contractor would be (a) because your remuneration would increase (by negociation of course), and you would have deductions, and (b) you would no longer be paying into the SS and medicare which is quite costly, and will not benefit you as much later on (you won't be using medicare, and your SS will be cut bases on WEP because of your Cdn work history, besides the cuts that will be made by the time you retire).
The big difference between CPP and SS, is that CPP is a much smaller program, so you pay less and expect less, while SS is quite a high taxrate plus medicare rate (which is useless), and has no hope to be solvent by the time your retire.
Being a Cdn-resident contractor for a US company is the best situation, IMO, as you get the favourable Cdn tax treatment for self-employed, the higher remuneration (since you are off-loading the firm of all your useless US-based benefits) without having to pay for your healthcare and the high Self-Employment tax that US contractors face.
The reason to go contractor would be (a) because your remuneration would increase (by negociation of course), and you would have deductions, and (b) you would no longer be paying into the SS and medicare which is quite costly, and will not benefit you as much later on (you won't be using medicare, and your SS will be cut bases on WEP because of your Cdn work history, besides the cuts that will be made by the time you retire).
The big difference between CPP and SS, is that CPP is a much smaller program, so you pay less and expect less, while SS is quite a high taxrate plus medicare rate (which is useless), and has no hope to be solvent by the time your retire.
Being a Cdn-resident contractor for a US company is the best situation, IMO, as you get the favourable Cdn tax treatment for self-employed, the higher remuneration (since you are off-loading the firm of all your useless US-based benefits) without having to pay for your healthcare and the high Self-Employment tax that US contractors face.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Keep in mind these are benefits as to why you should become self employed however there are more formalities to follow as an employer now you pay double the CPP ( as emploer and employee) aprox 10% combined or more depending on province . Also you have to rehisster for GST HST and or TVQ if applicable since you are providing services to your client who has offices in Canada its taxable. So its not all that simple either and there is the more detailed recordkeeping you need to follow to produce year end filings and GST returns.
JG
JGCA makes a good point, but keep in mind too that SS and medicare is extremely expensive as well. It would still be beneficial to be a contractor rather than US employee.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Yes. You would have collected SS if you had contributed even only 6 quarters.
Your SS will be reduced because of WEP (and because you contributed only 11 years), compared to a contemporary who had worked hos entire life in US, but you will get some.
Your CPP will be based on your Cdn work history.
Your SS will be reduced because of WEP (and because you contributed only 11 years), compared to a contemporary who had worked hos entire life in US, but you will get some.
Your CPP will be based on your Cdn work history.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
You will get all of your CPP, but as I said, when you formally apply for SS, you must disclose foreign work histoty, and WEP will be applied, reducing your SS.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
RE:
"you have to rehisster for GST HST and or TVQ if applicable since you are providing services to your client who has offices in Canada its taxable."
On CRA website, seach and see this term: GST/HST Memoranda Series
These CRA memorandum discuss certain advisory, professional, or consulting services, provided to nonresidents of Canada, that are performed all or partly in Canada as possibly being zero-rated.
"you have to rehisster for GST HST and or TVQ if applicable since you are providing services to your client who has offices in Canada its taxable."
On CRA website, seach and see this term: GST/HST Memoranda Series
These CRA memorandum discuss certain advisory, professional, or consulting services, provided to nonresidents of Canada, that are performed all or partly in Canada as possibly being zero-rated.