Hey everyone,
I'm currently about to start working for a small company in California doing full-time web/graphic design from home. I currently torn and confused about taxation.
The employer is willing to bring me on as either a full-time employee of the company (e.g. a contract), or as a full-time contractor where I would be my own separate contractor and invoice them weekly/bi-weekly. The choice is mine.
I would prefer the full-time employee option for the security of the position and for the peace of mind of being considered an employee rather than an independent contractor (even though there would be no health benefits or anything of that sort). I've read about having to pay income tax the IRS on my USD income, and then pay income tax to the CRA after that (double tax?!?!). Is there any truth to that?
For tax purposes, which would be the better option - salary or contractor? (For the contractor route, I would register a graphic design business as a sole proprietor). Which would be the easier and simpler option to deal with around tax time? Which option would tax more? How would CPP/EI factor in?
Expected income is between 55-65k USD. I will never be going to the US to do any work, it's always from home. What's the best way - self-employed contractor or ask to be considered an employee?
Thanks for any help.
Canadian living in Canada, working for US company remotely
Moderator: Mark T Serbinski CA CPA
They should be able to just cut you a cheque with no withholding whatsoever; no tax, SS or tax to pay in the US at all.
You would then report this income on the Canadian side in CDN $ on form T2125 as self-employment income and write off your expenses. You would not pay EI as a self-employed individual, but would pay 9.9% CPP on your NET business income on your tax return on schedule 8. This represents the 4.95% employer and 4.95% employee portion. You are responsible for paying both. You can however claim half as a deduction and the other half as a credit.
Hope this helps.
You would then report this income on the Canadian side in CDN $ on form T2125 as self-employment income and write off your expenses. You would not pay EI as a self-employed individual, but would pay 9.9% CPP on your NET business income on your tax return on schedule 8. This represents the 4.95% employer and 4.95% employee portion. You are responsible for paying both. You can however claim half as a deduction and the other half as a credit.
Hope this helps.
[quote="SM"]They should be able to just cut you a cheque with no withholding whatsoever; no tax, SS or tax to pay in the US at all.
You would then report this income on the Canadian side in CDN $ on form T2125 as self-employment income and write off your expenses. You would not pay EI as a self-employed individual, but would pay 9.9% CPP on your NET business income on your tax return on schedule 8. This represents the 4.95% employer and 4.95% employee portion. You are responsible for paying both. You can however claim half as a deduction and the other half as a credit.
Hope this helps.[/quote]
This helps a lot, thank you. So you would say it's easier and better to file as an individual self-employed contractor instead of an employee of the US company?
Also, CPP's 9.9% would be added onto my end of year tax? E.g. if my end of year tax bracket puts me in the category of owing 22% for example, I would owe 22 + 9.9 = 31.9% at the end of the year in tax? That seems very high!
You would then report this income on the Canadian side in CDN $ on form T2125 as self-employment income and write off your expenses. You would not pay EI as a self-employed individual, but would pay 9.9% CPP on your NET business income on your tax return on schedule 8. This represents the 4.95% employer and 4.95% employee portion. You are responsible for paying both. You can however claim half as a deduction and the other half as a credit.
Hope this helps.[/quote]
This helps a lot, thank you. So you would say it's easier and better to file as an individual self-employed contractor instead of an employee of the US company?
Also, CPP's 9.9% would be added onto my end of year tax? E.g. if my end of year tax bracket puts me in the category of owing 22% for example, I would owe 22 + 9.9 = 31.9% at the end of the year in tax? That seems very high!
You cannot be a US-employee of this company. Your choices are a Cdn employee of this company (with EI/CPP and Cdn taxes withheld) or a self-employed contractor.
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
Correct, the CPP would be collected when you file your tax return. This amount is not added to your income and taxed, it's just added on at the end after the tax is calculated. But yes, your effective tax rate would be about 32% if you consider this a tax.
When you are an employee you are still paying half of this amount, you just may not notice it as much. The only difference is now you are responsible for paying the portion that your employer would normally pay if you were an employee.
So really you are only paying 4.95% more than you normally would. You just pay it all at the end instead of having it withheld on your weekly check like you would as an employee.
By the way, you can't use your expenses to reduce this amount. In other words, if you have a loss, the loss can't be used to reduce the amount of CPP you owe. It must always be paid.
When you are an employee you are still paying half of this amount, you just may not notice it as much. The only difference is now you are responsible for paying the portion that your employer would normally pay if you were an employee.
So really you are only paying 4.95% more than you normally would. You just pay it all at the end instead of having it withheld on your weekly check like you would as an employee.
By the way, you can't use your expenses to reduce this amount. In other words, if you have a loss, the loss can't be used to reduce the amount of CPP you owe. It must always be paid.
.. but in another thread, you aid you work IN the US. That is the difference.
You cannot work exclusively IN Canada as a US-payroll employee. They would have to put you on a Cdn payroll.
You cannot work exclusively IN Canada as a US-payroll employee. They would have to put you on a Cdn payroll.
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 information.
So as I said, my expected income will be 55-65k USD (up to around 80k CDN as of how the dollar is right now). How much should I save as a good rule of thumb out of every pay for taxes? Does 30% sound it would cover everything at tax time? I've been saving 25, but that was before I considered CPP.
So as I said, my expected income will be 55-65k USD (up to around 80k CDN as of how the dollar is right now). How much should I save as a good rule of thumb out of every pay for taxes? Does 30% sound it would cover everything at tax time? I've been saving 25, but that was before I considered CPP.
Great, thanks. So I guess my next step is to officially set up my business with the CRA as a sole proprietor.
Also, is total tax paid in a lump sum after I do my taxes next year, or do self-employed workers pay tax quarterly?
Also, yes I'm in Ontario. And thanks again for the help, it's making much more sense now.
Also, is total tax paid in a lump sum after I do my taxes next year, or do self-employed workers pay tax quarterly?
Also, yes I'm in Ontario. And thanks again for the help, it's making much more sense now.
You have some options on how you want to set it up with CRA. In some cases you don't actually need to officially register for a business number. It all depends on how you will run the business. There is some very good info on CRA's website about this.
Total tax paid will be in a lump-sum for your first year, but CRA will likely request them the next year.
You have to pay quarterly installments if owe more than $3K in the current year AND you owed more than $3K in EITHER of the previous two years.
Total tax paid will be in a lump-sum for your first year, but CRA will likely request them the next year.
You have to pay quarterly installments if owe more than $3K in the current year AND you owed more than $3K in EITHER of the previous two years.
Thanks Nelsona for your reply. Yes, I work for a state university in the US 'remotely' as I live in Canada. I do have H1B permit from them. I go visit them once a year and stay there for couple of weeks. Been doing that for the past 6 years, not sure how long it will continue though. Before immigrating to Canada, I physically lived there and worked for that employer for 6 years. So, what do you think, is this an incorrect setup from CPP/EI point of view?