Canadian & US citizen moves to Illinois in US - Where does he pay tax

To: David Ingram
Subject: Canadian & US citizen moves to US

I am both a Canadian and a US citizen and have been living permanently in Canada. I have been filing both Canadian and US tax returns. My company plans to send me to Illinois for 2-3 years along with my family. Must I declare my income on both the US and Canadian declarations? Must I also file a Illinois return?

What differences occur if I am paid by the Canadian company vs the US company?

What must I do if I finally decide to stay permanently in the US?

david ingram replies:

The big problem is whether you intend to leave Canada. If you are leaving for tax purposes, you must file Canadian forms 1161, 1243 and 1244 to report your assets and any possible capital gains tax deferral.

If you wanted to remain a factual resident of Canada, you would file the Canadian return and exempt the US income on line 256 under article IV of the US / Canada Income Tax Convention. In this case you would not file a 1161, 1243, and 1244. There would be no tax payable to Canada other than on Canadian source income.

It does not really matter which company pays you. If you do not intend to return or it is likely you will remain in the US, switch to the US payroll and pay FICA.

If you know you are coming back, you can remain on the Canadian payroll but still have to file the Illinois and US returns and your first liability is to Illinois and the US. From years of personal experience, I can tell you that it is easier to switch payrolls BUT watch out for things like Pension continuations.

You should likely spend $428 and do a phone consultation with or someone like me.


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