Dual citizen moving back to CAN & telecommuting to US jo

HHWare · Post by **HHWare** » Thu Dec 17, 2009 1:18 am

I've been reading posts on your forum for the past hour - thanks for a great resource! Still not seeing, so far anyway, my question addressed - so I'll post it and keep reading while I wait for a reply. Thanks in advance.

One of the employees of my small US company is a dual US/Canadian citizen and is about to move back to Canada for an undetermined length of time to be closer to her aging dad. We intend to try a telecommuting arrangement whereby she continues to do her job remotely from Canada.

The question we face is whether it would be best for international taxation purposes to continue to treat her as an employee, or whether she should switch to independent contractor. I've seen suggestions that companies should set up Canadian payroll for workers living in Canada and I have no interest in undertaking that. (We're a company of 4 workers and I personally do the payroll.)

1) Can I continue to issue payroll checks and withhold/deposit US payroll taxes to an employee who lives in Canada? What new wrinkles or reporting requirements would the company incur by having an employee who lives outside the US?

2) What are the considerations for the worker? Other than the normal employee vs. contractor factors anyone would weigh, is there a "best" route for a worker living in Canada and working for a US company?

We're fortunate that the move is happening at the end of this year, so whatever we do will start clean on January 1, 2010.

I appreciate any advice and/or information. Thanks!

nelsona · Post by **nelsona** » Thu Dec 17, 2009 6:25 am

1) You should not pay her as a US employee, since her work is being performed in canada. she (and you) would be subject to Cdn payroll taxes first.
2) In Canada there are great advantages to being self-employed, due to the ability to write-off many things, without the large SE tax levied in US, and without the worry that one does not have health insurance. That said, if I was negociating the contract on behalf of the employee, I would be asking for at least 40% more from you as a contractor than you were payig as salary, since you would no longer be paying any payroll tax or benefits.