How Canadians Get Taxed?

Hello,

I am a Canadian who will be working the US as a teacher.
I was curious to know how the issue of being taxed works.
Do I pay taxes in the US and Canada, or just Canada?

If anyone has information on this I would appreciate an explanation.

Thank you.
Maya

http://www.cra-arc.gc.ca/E/pub/tg/p151/README.html

For all the good it does you. Basically yes, you can carry on paying Canadian taxes and you have to if you have residential ties to Canada. That pamphlet was written jointly by the CRA and the IRS - each has their own definition of residency, that pamphlet is a bit vague on pointing that out.

But you also have to file a US return, and attach relevant bits of paperwork depending on how long you are in the US, which basically tells the IRS to send your money to Ottawa. How you do it depends on how long you stay.

Although basically for 99.9% of cases you file a 1040NR and either an 8840 or an 8833 to claim the tax treaty exemption. (In practical terms it makes little difference which form you use, either 8840 or 8833, the IRS has separate forms because they are separate laws, but the effect is the same).

The more I read about it the more I come to the conclusion that moving your tax home to the US is an extraordinarily bad idea. You will pay less tax, because their taxes are lower, but if you move your tax home to the US it is a very messy business to move it back to Canada later on. Generally speaking carry on paying taxes in Canada unless you are 100% sure you are going to remain in the US forever, or at least primarily.

Steve, thank you very much for your reply. The information you provided is very helpful.

Much appreciated.
Maya

I take the opposite stance, as my wife here does not work, when I file jointly, my taxes are much less than if I were to file as a Married Canadian. The tax 'savings' when calculated online through EY and H&R block amount to almost $10,000 for me!

Say I'm wrong, and the amount is a $5000 difference, over 4-5 years, that's still $20,000-25,000!

I filed as leaving for the US on Aug 15th, on the first page of the T1. Deferred my American taxes and am filing a 1040.

I am thinking about moving to Oregon on a TN1 and whether to be a resident or non-resident of Canada for tax purposes.

I ran a little scenario of a single person who makes $100K in Oregon and leaves the tax home in Canada/BC. For simplicity I leave out RRSPs/401k/etc and other investment income.

Running it through QuickTax07, the total Canadian tax burden would be $27K.

Running it through an online US tax calculator, the federal tax would be $22K and the state tax would be almost $9K for a total of $31K.

Am I missing something?

Hi there BMW, I did the math on the cheap side by using Excel and U.S. and Canadian government websites to calculate the total tax. What I did find was that U.S. income tax and "other witholdings" were 16% more than the Canadian. In comparing just the income tax component on $85,000 the total income taxes (Fed and State - California)in the U.S. came up to $23,838. While total income taxes in Canada for the same salary came up to $24,066.89 (might be slightly overstated as I did not include the personal exemption as part of the calculation). So comparing income taxes, the U.S. tax is slightly lower. What made the tables turn (in favour of Canada) was the FICA (7.65%) and SDI (0.9%) that the U.S. govt levies which alone totalled $7268. In comparison, the equivalent Canadian Canada Pension Plan and Employment Insurance deductions which totalled a mere $2760.03. So having said that, it seems that every American dollar earned is garnished 16% more by the US government. You can easily earn about $10,000 LESS in Canada and keep as much as your American counterparts. I would love someone to validate this as I was always under the impression that our U.S. counterparts kept more of what they made than us Canucks do (investments not included as I do understand that these are taxed more favourably in the U.S.).

I should clarify that I calculated the taxes for a single person scenario. Maybe if you are married the tax treatment in the U.S. is more favourable?

That's interesting. I did the same thing and the difference between BC and Ontario is $3,000 more for Ontario. Also, Oregon charges a whopping 9% state tax on gross compared to Illinois 3%, which I think is on net, so that's at least another $6,000 there. So, it really depends on the province, the state, and let's not forget that the exchange rate can make a huge difference too when it's not so close to par.

What do you mean by this?.

"if you move your tax home to the US it is a very messy business to move it back to Canada later on"

If even the spouse moves back to Canada, and maintains a home there, doesn't that take care of becoming resident in Canada for tax purposes?

I'm reminded of a question about FICA taxes. I understand that all FICA are added into the 'foreign tax credit' as tax withheld when doing Canadian income taxes, under the assumption that the person, as a temporary worker, will not reasonably be able to benefit from the tax at any time in the future. My question is.

If you deduct the FICA taxes in good faith, for many years, and at some point you actually become eligible for Social Security benefits, what happens with regards to the FICA tax deductions you took in the past? Also, do you just stop claiming the FICA credit at that point for future years? Someone on a TN for parts of each of 10 years will then have enough points to collect Social Security, so in essence they are not longer elible for the FICA deduction. Does anyone have experience with this?