Canadian working for an online-based US Company - telecomuting
I have been offered the opportunity to be employed by a California based US company that conducts e-tail business. I am a Canadian citizen and would still be residing in Canada. Both the prospective employer and myself are trying to look for any regulations governing such a situation. In particular I am interested in the tax implications for myself. I'm wondering if it makes more sense for me to just set myself up as a company, bill these folks for my services, and then worry about the taxes myself.
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david ingram replies:
I am too busy to answer at this time. This older question has your answer. However, disregard the need to file a US tax return. US citizens have to file a US return no matter where they live.
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QUESTION:
Hi,
I'm an American citizen residing in Canada (permanent resident) and working for an American company remotely from home in Canada. I get a W2 at year-end. I assume I have to file both US and Canadian tax returns.
My questions are :
1) Do I file a US tax return and claim a foreign tax credit on my Canadians tax return. Or is it vice versa?
2) Do I still file state/local tax return in the US (I lived in Maryland prior to landing in Canada), even though I now reside in Canada?
3) For the extra tax I end up paying to the 2nd country (in excess to what I pay to the first country), can I claim any type of credit or deductions on that tax in next tax year?
Thank you very much!
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david ingram replies:
If you are working in Canada, you should not be getting a W-2. The reason is that as a resident of Canada, you should not be paying into US Social Security or Medicare or paying basic income tax to the USA.
Your first tax liability for services rendered in Canada under Article IV of the US Canada Income Tax Treaty is to Canada.
You should be filing a Canadian T1 return and paying Canada and provincial income tax and Canada or Quebec Pension Plan first. Then you would file your US return and either:
1. Use form 2555 to exempt up to $82,400 of income from US tax and then file US form 1116 to claim a foreign tax credit on the excess OR
2. Use form 1116 to claim the foreign tax credit on your US return for tax paid to Canada. If you have children, you would usually do the latter because it would usually qualify you for the $1,000 per child USA refundable tax credit.
3. In the case of interest (10%) and dividends (15%), you must get any excess tax back from the US by reclassifying the income on form 1116.
4. In the case of interest, you can claim the difference between 10 and 15% as a deduction on Canadian schedule 4.
5. You should NOT be paying into a US 401(K) or US Social Security. Canada will not allow the 401(K) as a deduction.
Your employer should start paying you on a 1099 Basis and pay you your salary plus their share of Social Security plus their share of Medicare plus their share of any 401 or other pension plan they contribute to.
___________________________________________________________
david ingram replies:
I am too busy to answer at this time. This older question has your answer. However, disregard the need to file a US tax return. US citizens have to file a US return no matter where they live.
------------------------------------------
QUESTION:
Hi,
I'm an American citizen residing in Canada (permanent resident) and working for an American company remotely from home in Canada. I get a W2 at year-end. I assume I have to file both US and Canadian tax returns.
My questions are :
1) Do I file a US tax return and claim a foreign tax credit on my Canadians tax return. Or is it vice versa?
2) Do I still file state/local tax return in the US (I lived in Maryland prior to landing in Canada), even though I now reside in Canada?
3) For the extra tax I end up paying to the 2nd country (in excess to what I pay to the first country), can I claim any type of credit or deductions on that tax in next tax year?
Thank you very much!
====================================================
david ingram replies:
If you are working in Canada, you should not be getting a W-2. The reason is that as a resident of Canada, you should not be paying into US Social Security or Medicare or paying basic income tax to the USA.
Your first tax liability for services rendered in Canada under Article IV of the US Canada Income Tax Treaty is to Canada.
You should be filing a Canadian T1 return and paying Canada and provincial income tax and Canada or Quebec Pension Plan first. Then you would file your US return and either:
1. Use form 2555 to exempt up to $82,400 of income from US tax and then file US form 1116 to claim a foreign tax credit on the excess OR
2. Use form 1116 to claim the foreign tax credit on your US return for tax paid to Canada. If you have children, you would usually do the latter because it would usually qualify you for the $1,000 per child USA refundable tax credit.
3. In the case of interest (10%) and dividends (15%), you must get any excess tax back from the US by reclassifying the income on form 1116.
4. In the case of interest, you can claim the difference between 10 and 15% as a deduction on Canadian schedule 4.
5. You should NOT be paying into a US 401(K) or US Social Security. Canada will not allow the 401(K) as a deduction.
Your employer should start paying you on a 1099 Basis and pay you your salary plus their share of Social Security plus their share of Medicare plus their share of any 401 or other pension plan they contribute to.
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