Living in Canada and working for USA company remotely

[Neelick]

Hi Steve,

I've been reading your responses and was very impressed by your knowledge. I'm hoping you might be able to answer a quick question. I am a U.S. citizen and now live in Canada as a permanent resident. I am self-employed and receive most of my income from a U.S. company that was my full-time employer when I lived in the U.S. I work remotely and invoice them monthly. They do not charge me any taxes and will send me a 1099 for the year. I understand the need to file both Canadian and U.S. taxes but wonder if this client must file any additional paperwork in order to procure my services.

Thanks!

Ken

[totvos]

Oops, I neglected to add that I am a Canadian citizen, which I can certainly prove with tax returns. My worry is based on something one of the USIS guys said: that if I make "a lot" of money from this US company, I am *effectively* an employee and need a work visa. This sounds bizarre to me, but when you are at the airport waiting to be "allowed" in it is hard to muster up pushback beyond "yes sir, no sir".

-- tomo

[Steven]

What citizenship you have doesn't really come into it, how much money you take from them is also irrelevant. Like I said, you have to file paperwork with the IRS which essentially documents the work is being performed in Canada, so I can't really think of anything better than that as proof and you have to file the paperwork anyway.

Bear in mind this reporting requirement was never really aimed at people like you - it was aimed as companies like Sony, who have to file an 1120-F corporate return with their 8833 every year and give 8233s to say, US Govt. agencies who they are contracted to.

It's not really in the remit of USCIS to disagree with that, but it does provide you with evidence.

[Steven]

I am a U.S. citizen and now live in Canada as a permanent resident. I am self-employed and receive most of my income from a U.S. company that was my full-time employer when I lived in the U.S. I work remotely and invoice them monthly. They do not charge me any taxes and will send me a 1099 for the year. I understand the need to file both Canadian and U.S. taxes but wonder if this client must file any additional paperwork in order to procure my services.

This is a different situation obviously as you are a US citizen and have to file a 1040 every year as a non-resident (as opposed to a 1040NR).

I've never done this one personally but I assume you simply file a 1040 as a non-resident and declare your income on it, but as the work was physically performed in Canada there is no US tax, you use the 1099s to complete your T1, do payroll deductions, etc. and pay Canadian taxes on it. You use Form 2555 to claim a foreign tax credit with your 1040.

The only wrinkle is if your income is over the limit stated on Form 2555 (which was $87,500 in 2007), then you will also have to pay taxes on the amount over that income. There are living expenses deductions you can claim to raise the limit on the 2555, but I think for Canada they are minimal (in fact I think they're non-existent).

I'm not sure non-resident US citizens have to make a formal tax treaty claim but I have a feeling they do, so you have to file a completed Form 8833 with your 1040 as well.

Check with the IRS non-resident dept. in PA to confirm all this because I might be wrong in some of the details. When you talk to them the thing to stress is that all the work is performed in Canada ("work" does not include training, meetings with them, things like that).

If you do actually perform some of the work in the US it gets much more complicated because under the 2008 tax treaty you have to pay tax proportionally, but there is no published guidance yet on how it will be implemented. I can guess if you want.

[Steven]

And to everyone in this thread - Form 8833 is a one-page form they reckon takes six and a half hours to complete, so phone up the IRS and ask them how to complete it _every year_ because the tax treaty changes.

[totvos]

Wow, I never in a million years would have expected that, as a Canadian citizen, working as an independent self-employed consultant in Canada and having a US-based customer, I would have to file something with the IRS.

Sigh.

-- tomo

[Steven]

Bear in mind it's very important that you do it, because it is your client who will get into trouble if you don't. They must have a Form 8233 on file for foreign contractors they use, to prove to the IRS they don't have to do NRA withholding. If they don't have one on file, the IRS can assess penalties against them.

Your paperwork (tax return and 8833) is so that they can match them up, so if they audit your client, the money going out to you (on their ledgers) matches what is being declared on the return, so it enables them to audit your client effectively.

Also it's done to stop "tax treaty" shopping, e.g. if you were based in a country with a higher NRA rate than Canada they can see from year to year which treaty provision you're claiming on your 8233 and 8833.

The thing that always gets up my nose about it is that it doesn't appear to be at first glance to be that much paperwork, especially if you're self-employed as the 1040NR is only three pages long and it's quite easy to fill in. So you get to the end of that and look at the fiddly forms 8833 and 8233, but they are completely open-ended and you haven't got the faintest clue what to put on them unless you're an expert on the tax treaty.

So at this point you call up the IRS and spend all day on the phone waiting for an agent who knows the answer to the question.

IRS publication 597 helps a little bit, but it's out-of-date as the tax treaty has changed.

[Neelick]

It made sense to me that I would have to file some type of return in the States in order for it to balance things out with my client. I will make sure they have the required form on file and also take care of the tax forms I need to file. I'm wondering if it might be worth hiring an international tax guy or gal to file these forms for me as bashing my head against the keyboard for an entire day as I try to figure these things out doesn't seem too appealing.

Thanks again!

Ken