My_question_is: Applicable to both US and Canada
Subject: Self employment tax
Expert: taxman at centa.com
Date: Tuesday June 06, 2006
Time: 01:27 PM -0700
QUESTION:
I am self employed dual US/Canadian citizen living in Canada.
Turbo tax has calculated US self employment taxes of about 1,667
although I pay CPP in Canada. I completed a schedule C and have
exempted my income with form 2555. Am I required to pay this or
is it exempt under treaty? if so how do I exempt it?
------------------------------
david ingram replies:
Under Part II of the US Canada Social Security agreement, a self
employed person only pays CPP or FICA (US social security) to the
country in which he or she resides.
Therefore, you should just override the Social Security
calculation to ($.00)
You can read the whole agreement at
http://www.ssa.gov/international/Agreement_Pamphlets/canada.html#
coverage
The actual part that applies to you is reproduced here.
Part II -- Coverage and Social Security taxes Before the
agreement, employees, employers and self-employed persons could,
under certain circumstances, be required to pay Social Security
taxes to both the United States and Canada for the same work.
Under the agreement, if you work as an employee in the United
States, you normally will be covered by the United States, and
you and your employer will pay Social Security taxes only to the
United States. If you work as an employee in Canada, you normally
will be covered by Canada, and you and your employer will pay
Social Security taxes (contributions) only to Canada.
On the other hand, if your employer sends you from one country to
work for that employer or an affiliate in the other country for
five years or less, you will continue to be covered by your home
country and you will be exempt from coverage in the other
country. For example, if a U.S. company sends an employee to work
for that employer or an affiliate in Canada for no more than five
years, the employer and the employee will continue to pay only
U.S. Social Security taxes and will not have to pay in Canada.
Even if your occupation (such as truck driver or professional
athlete) requires you to make frequent short trips from one
country to the other over a period of more than five years, each
trip can be considered separately so that you remain covered only
by the country from which you are sent.
If you are self-employed and residing in the United States or
Canada, you generally will be covered and taxed only by the
country where you reside.
-----------------------------------------
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