US Citizen Residing in Canada & Working Remotely for a US Employer

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 reasident 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 Incomne Tax Treaty is to Canada.

You should be filing a Candian T1 return and paying Canada and provincial income tax 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 onyour US return for tax paid to Canada. If you have children, you woul dusually do the latter because it would usually qualify you for the $1,000 per child USA refundabvle 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 contruibute to.

Comments (0)


CEN-TA Cross Border Services - Tax, Visas, Immigration
http://www.centa.com/article.php/20070322184715412