Canadian Working Remotely for US Company Taxes

Whether you have recently started working remotely for a US company from Canada or are planning to expand your employment options, remote work with US companies is an appealing endeavor. It can help you establish an effective routine while letting you enjoy the benefits of a better income. However, understanding the Canadian working remotely for US company taxes is vital to make the most out of the arrangement if you want to find success in your role. 

We will describe the tax implications of both the US and Canada that may apply to your income and how you can avoid getting double-taxed in both countries. Understanding the taxes between both countries can be difficult. So, its better to get help from a cross-border tax accountant to ensure you are paying all your taxes.

Can you Work Remotely from Canada for a US company? 

Yes, working remotely for a US company from Canada is possible. Many Canadians are doing it because the US offers diverse opportunities and can open a plethora of experiences. Moreover, it also provides financial flexibility as the salary stretches further after conversion in Canada. A remote job with a US-based company also has the benefit of flexible timing and greater control over your schedule.  

However, it is vital to understand the taxation and legal implications. You will have to be vigilant in understanding both Canadian and US tax obligations because if you are not careful, the implications can put you in a tough spot. 

Do I pay Canadian Taxes on US Income?

Yes, if I am working remotely from Canada for an American company. Canada required me to pay taxes on my worldwide income, including that from the US. Earning in US dollars and spending in Canadian dollars may seem tempting, but they come with their fair share of complexities during the tax season. 

You might be working with the US, but Canada wants it share, and the same goes for US citizens working remotely with a Canadian company. Depending on your income, I might have to pay a combined federal and provincial tax of up to 53% in Canada. 

Moreover, if we look at the US, they will hold back some of your earnings in terms of saving plans. The amount of withholding tax differs on the amount you earn and the information you provide to your employer. You can use the IRS withholding tax estimator to calculate the amount. 

Another thing that I have to care about is double taxation. It is a nightmare to get double-taxed on the same income. However, the US-Canada tax treaty ensures I don’t get taxed in both countries for the same income. Understanding the taxes for Canadians working remotely in the US may seem daunting, but with the proper knowledge, you can sail smoothly. 

During my remote working days with a US company from Canada, the firm used to deduct income taxes from the salary. So, at the end of the tax year, I’d file Form 8833 with my tax return and include the current situation in the summary to claim my US/Canada tax treaty benefits.

Most of the benefits of US/Canada tax treaty don’t have to claimed but if you find yourself in the similar situation then you can use the above method.

Social Security, Medicare, and Other Contributions

One example of withholding tax in the US is the Federal Insurance Contribution Act (FICA). The current tax rate for social security for an employee is 6.2%, and the Medicare rate is 1.45%. The FICA taxes in the US are the cousins of Canada Pension Plan and Employment Insurance.

Canadian Pension Plan is the equivalent of social security taxes. It is a social insurance funded by the contributions of employees, employers and the revenue earned on CPP revenue. Employment Insurance is a temporary support by the employers to unemployed workers seeking employment. Employer can also use it to pay employees when they take time off due to some life event like illness or accident.

The 2024 rates of Federal EI and CPP in Canada are 1.66% and 5.95%. 

Federal EI Rates Over the Years
Year	EI Rate (%)
2019	1.62
2020	1.58
2021	1.58
2022	1.58
2023	1.63
2024	1.66

It presents the annual Employment Insurance (EI) contribution rates for employees from 2019 to 2024. These rates are a percentage of insurable earnings and are critical for both employers and employees to consider in financial planning and payroll management.[2] 

Federal CPP Rate Over the Years
Year	Employee Contribution (%)
2019	5.10
2020	5.25
2021	5.45
2022	5.70
2023	5.95
2024	5.95

Above are the annual employee contribution rates to the Canada Pension Plan (CPP) from 2019 to 2024. These rates are essential for both employees and employers to understand as they determine the percentage of earnings that must be contributed to the CPP.[3] 

How to avoid double social security contributions? 

I can request a Certificate of Coverage to exempt US social security contributions from my earnings.  

Here is how it works. 

●        If I want to remain covered by the Canada Pension plan, then request a Certificate of Coverage using form CPT56 from Canada.ca.

●        Follow the information on the form and mail it to the mentioned address.

US employers retain the Certificate of Coverage in case of an audit by the IRS. They don’t have to send a copy to the IRS unless they request the certificate of coverage. Moreover, as a remote worker from Canada, I should attach a copy of the Certificate of Coverage on my US tax return every year as proof of exemption. 

Reporting Foreign Income when Working Remotely in Canada

Now that I have made American bucks, it’s time to let Canada know about my global venture. Because Canada wants to know about every penny I earn, so if I am working for a US-based company, I can’t escape Canadian taxes. 

Here are the things to keep in mind when filing your tax returns in Canada. 

●        Currency Conversion: It is vital to report all your income in Canadian Dollars. You cannot choose your own favorable rate; use an accredited bank’s exchange rate, such as the Bank of Canada. 

●        Foreign Tax Credit (FTC): Foreign tax credit is used to acknowledge that you have already paid taxes in the US on the same income. It prevents double taxation and promotes fairness in the global taxation system. The tax credit is a beneficial step. It helps you reduce Canadian tax liabilities.

Reporting your US earned income can be difficult, especially for first-time doers. So, it is better to seek help from a cross-border tax accountant to ensure you comply with Canadian taxation regulations. 

Canadian Working Remotely for a US Company Taxes

If I am a Canadian working remotely with a US company, then reporting your income to the IRS is crucial it is over $11,600.

Here is how the US taxation works. 

●        Tax Withholding: The first tax shock for me was the amount the US companies withhold. They hold up to 30% of the income. Which mean if my salary is $50,000, IRS will keep up to $15,000 as withholding tax.

●        Tax Treaties: As mentioned above, the US and Canada have a tax treaty to prevent double taxation on the same income. It is your best friend for cross border taxation. You can claim FTC on your Canadian return for taxes paid in the US.

●        Forms and Documentation: You will have to file a non-resident US tax return using Form 1040-NR and W-8BEN. The forms are for non-US citizens who have worked in the US or earned income in the US.  W-8BEN tells IRS that you are Canadian citizen and they should not tax you as CRA will tax your income 

How can I Save Taxes as a Canadian Working Remotely for US Company? 

Registered Retirement Savings Plan (RRSP)

A Registered Retirement Savings Plan is a retirement savings and investing plan for employees and self-employed in Canada. The pre-tax money is placed into an RRSP and grows tax-free until withdrawal; at that time, they are taxed at marginal rates. It allows me to save for retirement while taking special tax benefits that can help me before I retire. RRSP has many features that are common to 401 (k) plans in the United States. 

Let’s say John makes $100,000 a year and puts $10,000 in their RRSP, then John’s taxable income will be reduced to $90,000, and his $10,000 will sit tax-free in his RRSP.

John can open an RRSP in many places like:

●        Bank and trust companies

●        Credit unions

●        Mutual fund companies

●        Investment firms

●        Life insurance companies

RRSP has many advantages to saving for retirement. Here is why you should use RRSP to save for retirement like John. 

●        RRSP reduces your taxable income

●        Your savings grow tax-free while in the plan

●        You can convert it into regular payments when you retire

●        You can borrow from RRSP to buy things like your home or car 

Medical Expenses

I can also claim medical expense deduction from my income, for myself, my spouse and dependent child under 18, or common law partner. The maximum amount of deduction is either 3% of my income or $2497, whichever is lower. 

For example, if 3% of John’s income is $1500, John can claim $1500. If 3% is $3500, John can only claim $2479. 

It asks you to attach medical receipts on the tax return if I am filing the return on paper. I don’t need the receipt for electronic filing. But it is better to keep them safe.

Charitable Donations

Charitable tax credits reduce my tax liability and improve the tax return. It is a popular method because, according to a survey, 23% of Canadians donate to obtain income tax credit. For anyone who makes a donation to registered charities, the federal government allows you to claim a non-refundable charitable tax credit. 

The donation is a gift for no consideration in return; if I receive something in exchange, I must subtract the amount from the amount you donated and claim the tax credit for the difference. The charitable tax credit is 15% on the first $200 and 29% on any amount over $200 made by an individual taxpayer. 

I can claim the credit by filing a Schedule 9 form on the annual tax return. I will have to attach donation receipts or any other supporting document. 

Many Canadian use this method, I think it is a great way to reduce your taxable income. Moreover, it helps you accumulate deductions for multiple years while enhance your tax credit.

Basic Personal Amount

The basic Personal Amount is a non-refundable tax credit that can claimed by all Canadian citizens. It provides a full reduction for taxable income below BPA and a partial deduction for taxable income above BPA. 

As of 2024, the federal basic personal amount is $15,705; this means I can earn up to $15,705 in Canada before paying any federal income tax. Basic Personal Amount is called Standard Deduction in the US. The SD for 2024 is $14,600 for individuals. 

My Advice for Navigating the Tax Maze of US/Canada Cross Border Taxes

Seek Professional Advice	One thing that I really struggled was understanding the tax implications. It’s difficult and can take a lot of your time. So, I will always recommend hiring a cross-border tax expert. Theya re your tour guides that will take you through the tax world.
Record Keeping	Receipts and relevant documents are very important They have caused me pay more taxes and saved me on many occasions. So, be vigilant with record keeping as it will save you from a lot of hassle.
Stay Updated with the Tax Laws	Again, a tax expert can be a great partner but it is important to familiarize yourself. It gives you better insight and knowledge that can help you save some taxes intelligently.

Conclusion 

From understanding Canadian taxes to US tax implications, you are now equipped with the knowledge to handle cross-border taxation. The key to a smooth tax experience is to stay proactive and not wait for tax season to scramble. You should always keep learning about the tax world to adapt quickly to changes. 

Remember, you cannot always track the complexities of the tax implications yourself, especially when it comes to cross-border taxes. So, to avoid any inconvenience, it’s better to seek advice from a Professional Tax CPA. 

FAQs